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CURRENT  ECONOMIC  PROBLEMS 


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CURRENT  ECONOMIC 
PROBLEMS 

# 
A  SERIES  OF  READINGS  IN  THE  CONTROL  OF 
INDUSTRIAL  DEVELOPMENT 


EDITED  BY 

WALTON  HALE  HAMILTON 


THE  UNIVERSITY  OF  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


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Copyright  IQ14  By 

Walton  H.  Hamilton 

Copyright  1915  By 

The  University  of  Chicago 


All  Rights  Reserved 


Preliminary  Edition  Privately  Printed  by 
The  University  of  Michigan  1914 


Published  August  1915 
Second  Impression  February  1916 
Third  Impression  September  1916 


Composed  and  Printed  By 

The  University  of  Chicagro  Press 

Chicago,  Illinois.  U.S.A. 


c 


PREFACE 

The  addition  of  this  collection  of  readings  to  the  long  list  of 
books  in  elementary  economics  is  due  to  no  premeditated  design. 
It  had  assumed  dimensions  too  formidable  to  be  suppressed  before 
the  decision  to  publish  it  was  made.  It  has  emerged  as  a  by-product 
of  some  years  of  experience  with  classes  in  current  economic 
problems.  Its  beginning  is  to  be  found  in  the  use,  as  supplementary 
material,  of  some  readings  quite  different  in  kind  from  the  matter 
presented  in  the  texts.  As  time  has  passed,  the  purpose,  viewpoint, 
subject-matter,  and  arrangement  of  the  course  have  all  undergone 
constant  modification.  The  readings,  accordingly,  have  also 
changed  in  purpose,  in  character,  and  in  arrangement.  They  have 
increased  in  number  until  the  collection  eventually  has  come  to 
assume  pretentious  size.  Its  growth  has  known  its  periods  of 
gradual  accretion  and  its  times  of  stress  and  strain.  The  latter 
have  resulted  in  the  appearance  of  a  collection  of  readings  in 
mimeographed  form  nearly  three  years  ago,  a  revision  in  printed 
form  a  year  later,  and  the  present  re-revised  edition.  Its  gradual 
emergence  is  the  result,  in  part  of  the  editor's  developing  conception 
of  the  subject,  in  part  of  class  room  experience.  Unfortunately 
both  of  these  forces  impelling  development  are  still  in  process.  The 
editor  can,  accordingly,  give  no  guaranty  that  for  the  indefinite 
future  he  will  vouch  for  the  present  collection,  either  in  its  general 
outlines,  or  in  its  detailed  arrangement.  But,  if  there  is  to  be  no 
end,  there  must  be,  for  a  time  at  least,  a  respite  from  experimen- 
tation. 

An  attempt  has  been  made  to  adapt  these  readings  to  the  needs 
of  an  introductory  course.  This  has  been  all  the  more  necessary, 
because  the  greater  part  of  them  were  not  intended  for  this  use. 
This  adaptation  has  involved  the  elimination  of  extraneous  matter, 
as  well  as  the  omission  of  discussions  of  subtle  points.  The  latter, 
however  valuable  to  advanced  students,  are  likely  to  divert  the 
minds  of  novices  in  economics  from  the  main  issues.  In  this 
process  most  of  the  readings  have  been  reduced  materially  in  length. 
In  many  cases  the  reduction  has  been  quite  drastic.  Since  this  vol- 
ume is  not  intended  for  reference  purposes,  the  omissions  have 
not  been  indicated  in  the  text.  The  footnotes  of  the  originals,  except 
where  imperatively  demanded,  have  been  dispensed  with.  Most  of 
the  titles  are  of  the  editor's  selection.  An  attempt  has  been  made, 
however,  faithfully  and  accurately  to  preserve  the  viewpoint  and 


vm  PREFACE 

thought  of  the  authors.  Very  little  liberty  has  been  taken  with 
their  words,  the  few  verbal  changes  made  being  intended  to  estab- 
lish coherence. 

The  dates  in  the  bibliographical  footnotes  are  intended  to  repre- 
sent, not  the  copyrights  of  the  books  from  which  the  readings  are 
taken,  but  the  first  appearances  of  the  selections  in  the  forms  in 
which  they  are  given  here. 

A  cursory  examination  of  this  volume  will  furnish  sufficient 
evidence  that  the  editor  could  not,  no  matter  how  ardent  his  de- 
sires, assume  responsibility  for  the  opinions  expressed  in  the  read- 
ings. For  the  volume  as  a  whole  his  responsibility  is  only  that  of 
selecting  efficient  teaching  materials  and  presenting  faithfully  the 
various  elements  and  attitudes  which  are  factors  in  current  economic 
problems.  He  is,  of  course,  responsible  for  the  unsigned  readings. 
But  these  were  written,  in  lieu  of  selections  by  others  for  which 
he  made  diligent  but  futile  search,  to  meet  definite  classroom  needs. 
Several  of  them  are  quite  at  variance  with  his  own  opinions.  He 
accepts,  however,  full  responsibility  for  the  opinions  expressed  in 
the  various  introductory  sections. 

The  editor  has  used  the  book  to  meet  two  needs.  The  first  is  that 
of  a  course  in  current  problems  which  complements  a  separate 
course  in  "principles."  The  second  is  in  a  course  in  general  eco- 
nomics, covering  both  fields.  In  the  former  case  he  has  relied  upon 
it  as  the  principal  pedagogical  instrument.  In  the  latter  he  has  used 
a  text,  one  of  the  more  unpretentious  kind,  to  cover  the  work  in 
value  and  distribution  and  for  description  of  economic  mechanism. 
In  both  cases  he  has  used  problems  and  exercises  as  supplementary 
material.  The  book  has  sufficient  volume  for  a  year's  work.  It 
should  serve  the  need  of  one  semester  course,  perhaps  all  the  better, 
by  presenting  a  wide  variety  of  subjects  from  which  to  choose  the 
particular  topics  which  are  to  be  discussed.  If  a  part  remain  unused, 
so  much  the  better;  it  will  concretely  illustrate  the  too  often 
neglected  truth  that  the  subject  of  study  is  too  large  to  be  pent  up  in 
any  course  or  textbook.  Perhaps  it  is  permissible  to  state  in  pass- 
ing that  the  editor  has  in  preparation  a  book  of  outlines,  exercises, 
and  problems  covering  the  field  of  this  volume.  He  expects  to 
publish  it  within  the  next  few  months. 

In  conclusion  the  editor  wishes  to  acknowledge  his  obligations 
to  those  who  have  helped  to  make  the  book  what  it  is.  He  has 
drawn  very  largely  upon  the  classroom  experience  of  those  who 
were  associated  with  him  at  the  University  of  Michigan  in  the 
course  in  "Current  Economic  Problems."  He  is  also  under  par- 
ticular obligations  to  his  former  colleague.  Professor  Fred  M. 
Taylor,  of  the  University  of  Michigan,  to  whom,  more  than  to 


PREFACE  in 

anyone  else,  the  publication  of  this  volume  is  due;  and  to  his 
colleagues,  Professors  Leon  C.  Marshall  and  Harold  G.  Moulton, 
of  the  University  of  Chicago,  who  have  made  many  valuable  sug- 
gestions about  subject-matter  and  the  arrangement  of  the  material. 
His  obligations  to  various  publishers,  who  have  generously  permitted 
the  use  of  much  valuable  copyrighted  material,  are  expressed  in 
detail  in  the  bibliographical  footnotes. 

W.  H.  H. 
University  of  Chicago 
August  19,  1915 


TABLE  OF  CONTENTS 

Introduction 

PAGE 

I    The  Study  of  Current  Economic  Problems xxvii 

2.  Economic  Problems  as  Aspects  of  Social  Development     .       .       .  xxxii 

I.    The  Antecedents  of  Modem  Industrialism 
Introduction i 

A.    Ideals  Underlying  Industrial  Development 

1 .  The  Essential  Characteristics  of  Modern  Industrialism     ...         2 

2.  Christian     Teaching     and     Industrial    Development.       William 
Curmingham 5 


B.    Manorial  and  Gild  Economy 

3.  The  Manor,  a  Self-Sufficient  Economy.    William  J.  Ashley     . 

4.  Wage- Work  and  the  Handicraft  System.     Carl  Biicher    . 

5.  Ordinances  of  the  Gild  Merchant  of  Southampton     .       .       , 

6.  Ordinances  of  the  White-Tawyers 

7.  Preamble  to  the  Ordinances  of  the  Gild  of  the  Tailors,  Exeter 


7 
10 

IS 
15 


C.    Mediaeval  Commerce 

8.  A  Definition  of  Commerce.    J.  Dorsey  Forrest 16 

9.  The  Attitude  of  the  Mediaeval  Church  toward  Commerce.    William 

J.  Ashley     .       .    ' 16 

ID.  The  Contribution  of  the  Church  to  Commercial  Development. 

J.  Dorsey  Forrest 18 

11.  Italian    Commerce   and   Industry   in   the   Fourteenth    Century. 
Thomas  B.  MacaUlay 20 

D.  Mediaeval  Industrial  Policy 

12.  The  Spirit  of  Solidarity  in  the  Mediaeval  Town         .       .       .       .  21 

13.  Articles  of  tEFSpurriers  of  London 24 

14.  Mediaeval  Tricks- of  Trade.    Berthold  von  Regensburg    .       .       .  25 

15.  The  Control  of  Industry  in  the  Gild  Period.    L.  F.  Salzmann      .  27 

E.  Mediaeval  Economic  Theory 

16.  The  Gospel  of  Stewardship.    Thomas  Aquinas 31 

17.  The  Usurer's  Fate.     Caesarius  of  Heisterbach 32 

18.  Usury  versus  the  Boycott.     Irmocent  III 33 

19.  The  Characteristics  of  Mercantilist  Doctrine.    John  Kells  Ingram  33 


XU  CONTENTS 

n.    The  Industrial  Revolution 

PAGE 

Introduction 36 

A.    The  Antecedents  of  the  Revolution 

20.  The  Characteristics  of  the  English  People.    Alfred  Marshall  .       .  37 

21.  English  Industry  on  the  Eve  of  the  Revolution.    Arnold  Toynbee  38 

22.  Geographical  Discovery  and  the  Revolution.    William  Cunning- 
ham       42 

B.    The  Nature  and  Scope  of  the  Revolution 

23.  Technology  and  the  Revolution 44 

24.  The  Comprehensiveness  of  the  Revolution.    J.  H.  Clapham    .       .  48 

25.  The  Significance  of  the  Revolution.     Grant  Robertson     .       .       .  51 

C.    Labor  and  the  Revolution 

26.  Labor's  Willing  Slaves.    Edwin  Arnold"       ......  55 

27.  The  Wage-Slaves.    Allan  L.  Benson 56 

D.    The  New  Industrialism 

28.  The  Function  of  Capital.    J.  Dorsey  Forrest 57 

29.  The  Factory  System.     Carl  Biicher 59 

30.  The  Machine  Process.    Thorstein  B.  Veblen      .       .       .       .       .  60 

31.  The  New  Domestic  System.    Herbert  J.  Davenport         ...  62 

E.    The  Extension  of  Industrialism 

32.  The  Competitive  Victory  of  Western  Culture.    James  Bryce  .       .  66 

33.  The   Economic    Conflict    of    Western    and    Primitive    Culture. 
Frieda  S.   Miller 67 

34.  The  Export  of  Speculative  Capital  and  War.    Alvin  S.  Johnson     .  70 

III.     Social  Control  in  Modern  Industrialism 
Introduction .       .       .74 

A.    The  Nature  of  Progress 

35.  What  Is  Progress  ?    James  Bryce 76 

36.  Evolution  or  Progress  ?    L.  T.  Hobhouse 77 

37.  The  Criteria  of  Progress.    James  Bryce 80 

B.    The  Control  of  Economic  Activity 

38.  The  Agencies  of  Social  Control.    Elizabeth  Hughes  .       .       .       .  84 

39.  The  Family  as  an  Agency  of  Control 86 

40.  The  State  as  an  Institution  of  Social  Control.     Edwin  Cannan  88 


CONTENTS  xiii 

C.    The  Statement  of  the  Laissez-Faire  Theory 

PACE 

41.  The  Fundamental  Law  of  Nature.    William  Blackstone  ...  90 

42.  A  Diatribe  against  Human  Institutions.    J.  J.  Rousseau         .       .  91 

43.  A  Plea  against  Governmental  Restraint.    Adam  Smith    ...  91 

44.  A  General  Condemnation  of  Government.     William  Godwin          .  93 

45.  The  Identity  of  Individual  and  Social  Good.    Piercy  Ravenstone  94 

46.  A  Protest  against  Useless  Restrictions.    Jeremy  Bentham       .       .  95 

47.  Opportunity.    John  J.  Ingalls -95 

D.    The  Interpretation  of  Laissez-Faire 

48.  The  Philosophy  of  Individualism.    Albert  V.  Dicey  ....  96 

49.  The  Individualistic  Theory  of  Government.    John  Stuart  Mill       .  98 

50.  The  Authoritative  Basis  of  Laissez-Faire 103 

51.  The  Unscientific  Character  of  Laissez-Faire.    J.  E.  Cairnes    .       .  105 

E.    The  Protest  against  Individualism 

52.  The  Tyranny  of  the  Machine.    Joseph  Harding  Underwood    .       .     107 

53.  The  Passing  of  the  Frontier.    Thomas  B.  Macaiday,  James  Bryce, 

and  Peter  Finley,  Dunne 108 

54.  The  New  Issues.    William  Garrott  Brown  ......     109 

F.    The  Theory  and  Program  of  Social  Control 

55.  The  Individualistic  Basis  of  Social  Control.    Thomas  Hill  Green  .     113 

56.  Social  Reform  and  Self -Reliance.    W.  Lyon  Blease   .       .       .       .115 

57.  Laissez-Faire  in.Practice.    L.  T.  Hobhouse 118 

58.  A  Program  of  Social  Reform.    Woodrow  Wilson  .       .       .120 

G.    Conservative  Factors  in  Development  of  Social  Control 

59.  Arrested  Constitutional  Development.    Myron  T.  Watkins    .       .123 

60.  The   Anti-Paternalism   of   the    Government.    Missouri   Supreme 
Court 124 

61.  Industrial  Freedom  and  Prosperity.    James  J.  Hill   .       .       .       .125 

62.  Public  Enemies.    Walt  Mason 128 

63.  The  Dominance  of  the  Entrepreneur  View-Point       .       .       .       .128 

64.  The  Futility  of  Utopian  Legislation.    Elihu  Root      .       .       .       .132 

H.    The  Basis  of  National  Efficiency 

65.  Individualism  and  American  Efficiency.    Arthur  Shadwell      .       .     135 

66.  German  Socialized  Efficiency.     Samuel  P.  Orth         ....     138 

rV.     The  Pecuniary  Basis  of  Economic  Organization 
Introduction .....     143 

A.    Price  as  an  Organizing  Force 

67.  The  Social  Order.    Edwin  Cannan 144 

68.  Competition  and  Industrial  Co-operation.     Richard  Whately  146 


PAGE 


XIV  CONTENTS 

B.    Pecuniary  Competition 

69.  Economic  Activity  as  a  Struggle  for  Existence.    Arthur  Fairbanks  148 

70.  Competition  and  Organization.     Charles  H.  Cooley  .       .       .       •  1 50 

71.  The  Beneficence  of  Competition.    Charles  Kingsley         .       .       .  152 

72.  Competition  and  Selfishness.     S.  J.  Chapman 152 

73.  The  Ethics  of  Competition.    J.  A.  Hobson 152 

74.  StateDeterminationof  the  Plane  of  Competitive  Action.    Henry  C. 
Adams 154 

C.    Price-Fixing  by  Authority 

75.  The  Statute  of  Laborers.    Statutes  of  the  Realm      .       .       .       .156 

76.  Price-Fixing  by  Commission.    Martin  Luther 158 

77.  The  Futility  of  Price-Fixing.    John  Witherspoon      .       .       .       .159 

D.    The  Function  of  Middlemen 

78.  A  Condemnation  of  Forestallers.    Statutes  of  the  Realm  .  .  161 

79.  If  Forestallers  Had  Their  Deserts.     George  Washington  .  .  .  161 

80.  The  Function  of  the  Middleman.    Hartley  Withers         .  .  .  162 

81.  Middlemen  in  the  Produce  Trade.    Edwin  G.  Nourse      .  .  .  163 

E.    Speculation 

82.  The  Gamble  of  Life.    John  W.  Gates 

83.  The  Twilight  Zone.    Harry  J.  Howland 

84.  The  Ethics  of  Speculation.    Outlook 

85.  The  Utility  of  Cotton  Futures.    Alfred  B.  Shepperson     . 

86.  Hedging  on  the  Wheat  Market.    Albert  C.  Stephens 

87.  The  Ups  and  Downs  of  Securities.    Francis  W.  Hirst 

88.  The  Function  of  Exchanges.    Charles  A.  Conant 

89.  The  Experience  of  Germany  with  Stock  Exchanges.    The  Hughes 
Committee 

F.    The  Corporation 

90.  The  Nature  of  the  Business  Corporation.    Harrison  S.  Smalley 

91.  Corporate  Distribution  of  Risk  and  Control.     W.  H.  Lyon 

92.  The  Management  of  the  Corporation.    Wesley  C.  Mitchell     . 

93.  The  Ethics  of  Corporate  Management.    Henry  Rogers  Seager 

94.  The  Corporation  and  Personal  Efficiency.     George  W.  Perkins 

95.  The  Function  of  the  Corporation.    J.  B.  Canning     . 


165 
i6s 
168 
170 
171 

173 
176 

178 


180 
184 
186 
187 
189 
191 


V.    Problems  of  the  Business  Cycle 

Introduction 195 

A.    The  Delicate  Mechanism  of  Industry 

96.  The  Spirit  of  Business  Enterprise.    Wesley  C.  Mitchell   .  .  .196 

97.  The  Interdependence  of  Prices.    Wesley  C.  Mitchell        .  .  .  199 

98.  The  Sensitive  Mechanism  of  Credit.    Harold  G.  Moulton  .  .  202 
99..  Th?  "Planlessness"  of  Production.    Wesley  Cf  Mitchell  .  .  .  206 


CONTENTS  XV 

B.    The  Economic  Cycle  p^c^ 

loo.  The  Periodicity  of  Commercial  Crises.    J.  S.  Nicholson     .       .       ,  208 

loi.  The  Rhythm  of  Business  Activity.    Wesley  C.  Mitchell  .       .       .  210 

C.    The  Antecedents  of  Crises 

102.  The  Causes  of  the  Panic  of  1893.    W.  Jett  Lauck     .       .       .       .210 

103.  The  Irrepressible  Crisis.    W.  H.  Lough,  Jr.        .       .       .  .218 

104.  Industrial  Conditions  Preceding  the  Panic.    Moody's  Magazine      .  221 

105.  The  Arrested  Crisis  of  1907.    Edwin  R.  A.  Seligman        .       .       .  223 

D.    The  Course  of  a  Crisis 

106.  The  Course  of  the  Panic  of  1893.    Alexander  D.  Noyes   .       .       .  225 

107.  The  Course  of  the  Panic  of  1907.    Ralph  Scott  Harris     .       ,       .  228 

108.  The  Order  of  Events  in  a  Crisis.    Arthur  T.  Hadley         .       .       .  230 

E.    Financial  and  Industrial  Conditions  during  a  Crisis 

109.  A    Week    of    Financial    History.      Commercial    and     Financial 
Chronicle 232 

no.  General  Industrial  Conditions  in  a  Crisis.    Bradstreet's     .       .       .  233 
x'li.  The  Premium  on  Currency  in  1893.      Commercial  and  Financial 

Chronicle 235 

1 12.  The  Hoarding  of  Currency  in  1893.    J.  DeWitt  Warner  .       .       .  235 

113.  Estimate  of  Money  Hoarded  in  1907.     Moody's  Magazine       .        .  236 

114.  Economies  in  Credit.    Atlanta  Clearing  House.         ....  236 

115.  Shipment  of  Currency  to  the  Interior.    Commercial  and  Financial 
Chronicle 237 

F.    Industrial  Conditions  during  a  Depression 

116.  Panics  versus  Depressions.     George  H.  Hull 238 

117.  The  Extent  of  the  Depression  of  1907-8.    Moody's  Magazine         .  239 

G.    Typical  Theories  of  Crises 

118.  The  Fruits  of  the  Exploitation  of  Labor.    Frank  K.  Foster     .       .  240 

119.  The  Impossibility  of  Over-Production.    John  Stuart  Mill        .       .  242 

1 20.  Sun-Spots  and  Crises.    W.  Stanley  Jevons 243 

121.  The  Neo-Jevonian  Theory.    Alvin  S.  Johnson 245 

122.  Capitalization  and  Crises.    Frank  A.  Fetter 246 

123.  The  Lagging  Adjustment  of  Interest.    Irving  Fisher        .       .       .247 

H.    Credit  and  Crises 

124.  Inelasticity    of    Credit    under    the    National    Banking    System. 
Harold  G.  Movdton 24;; 

125.  How  a  Panic  Was  Averted  in  1914.    Journal  of  Political  Economy.  251 

126.  Provisions   for  Elasticity   in   the  New   Currency  Act.      L.  M, 
Jacobs,  Jr 253 

127.  Emergency  Elasticity  of  Credit.    Harold  G.  Moulton              .       .  255 

128.  Emergency  Elasticity  of  Note  Issue.    Fred  M.  Taylor             .       .  257 


XVI  CONTENTS 

I.    Control  of  the  Industrial  Cycle 

PACE 

129.  Panic  Rules  for  Banks.    Walter  Bagehot 259 

130.  The  Part  of  Individual  Responsibility.    Theodore  E.  Burton       .  260 

131.  Bettering  Business  Barometers.    Wesley  C.  Mitchell        .       .       .261 

132.  The  Severity  of  the  Trade  Cycle  in  America.     W.  A.  Paton    .       .  265 

VI.     Problems  of  International  Trade 

Introduction 268 

A.    The  Basis  of  International  Trade 

133.  International  Co-operation.     Charles  Gide 270 

134.  The  Law  of  Comparative  Costs.    Fred  M.  Taylor    ....  271 

135.  The  Theory  of  Free  Trade 273 

B.    The  Mechanism  of  International  Trade 

136.  The  Theory  of  International  Exchange 275 

137.  The  Favorable  Balance  of  Trade.    Thomas  Mun  and  Charles  W. 
Fairbanks 277 

138.  The  Mystery  of  the  Balance  of  Trade.    Hartley  Withers  .       .       .278 

139.  The    Reciprocal    Character    of    International    Trade.     Fred    M. 
Taylor 281 

C.    The  Demand  for  Local  Protection 

140.  Keeping  Trade  at  Home.    Various  Sources.        .....  284 

141.  Remember  Colorado.    Denver  Times 286 

142.  The  Seen  and  the  Unseen.    Frederic  Bastiat 287 

D.    The  Perennial  Argument  for  Protection 

143.  Gold  and  Wealth.    Martin  Luther 289 

144.  What  the  State  Owes  to  Industry.     George  B.  Curtiss     .       .       .  289 

145.  The  Production  of  Prosperity.    Daniel  Defoe 291 

146.  The  Ten   Commandments  of  National   Commerce.    A   German 
Circular 292 

147.  The  Test  of  Faith.    Roswell  A.  Benedict 293 

148.  The  Universal  Fruits  of  Free  Trade.    Andrew  Yarrington       .       .  294 

E.    The  Case  for  Protection 

149.  Protection  and  Industrial  Transformation.    Friedrich  List      .       .  295 
1 50. 'America's  Allegiance  to  Protection.    Albert  J.  Leffingwell       .       .  296 

151.  Present  Validity  of  the  Young-Industry  Argument.    Frank  William 
Taussig 298 

152.  Protection  and  the  Formation  of  Capital.    Alvin  S.  Johnson  .       .  301 

153.  The  Economics  of  Protection .  304 

154.  Protection  and  the  National  Defense 307 

{      ■ 


CONTENTS  xvii 

F.    The  Intlxjence  of  the  Tariff  on  Wages 

PAGE 

155.  High  Wages  an  Obstacle  to  Manufacture.    Daniel  Webster    .       .  309 

156.  Protection  and  High  Wages.    Anurican  Economist    ....  310 

157.  The  Effect  of  Industrial  Changes  on  Wages.    Alvin  S.  Johnson  311 

G.    The  Historical  Setting  of  the  Current  Tariff  Problem 

158.  A  Half-Century  of  Tariff  History.    Harrison  S.  Smalley  .       .       .  313 

159.  Recent  Tariff  History 317 

160.  What  a  Tariff  Bill  is  Like.    The  Underwood-Simmons  Act     .       .  319 

H.    The  Argument  from  Experience 

161.  Protection  and  Prosperity.    Robert  Ellis  Thompson         .       .       .323 

162.  American  Free  Trade  and  American  Prosperity.     George  Baden- 
Powell         324 

163.  Free  Trade  and  Prosperity.    Liberal  Party  Pamphlet                     .  325 

I.    The  Impracticable  Nature  of  Protection 

164.  A  Himable  Request  of  Congress.    Wool  Growers  and  Manufacturers  327 

165.  Woolens  and  Welfare.    N.  T.  Folwell 328 

166.  A  Recipe  for  Securing  Duties.    S.  N.  D.. North  and  William 
Whitman 328 

167.  The  Tariff  a  Local  Issue.     Congressional  Record         ....  329 

168.  Tariff  for  Politics  Only.    Peter  Finley  Duime 330 

169.  Tricks  of  Tariff  Making 333 

J.    The  Scientific  Revision  of  the  Tariff 

170.  Producers'  Costs  and  Tariff  Duties.    William  C.  Redfield       .       .  335 

171.  Investigation  and  Tariff  Legislation.    Henry  C.  Emery   .       .       .  340 

172.  The  Impossibility  of  Ascertaining  Costs.    H.  Parker  Willis     .       .  342 

Vn.     The  Problem  of  Railway  Regulation 

Introduction 344 

A.    The  Fundamental  Factors  of  the  Problem 

173.  The  Extent  of  American  Railway  Interests.    I.  Leo  Sharfman  346 

174.  The  Dual  Nature  of  the  Railway  Corporation 347 

175.  The  Economic  Basis  of  Regulation.     I.  Leo  Sharfman      .       .       .  348 

1 76.  The  Futility  of  Railway  Competidon.    Arthur  T.  Hadley       .       .  352 

B.  Discriminatory  Practices  of  the  Railroads 

177.  Types  of  Railway  Discriminarion.     George  H.  Lewis        .       .       .  355 

178.  Discriminations  between  Conamodities.    Albert  N.  Merritt     .  357 

179.  Discriminations  in  the  Transportarion  of  Oil.    Commissioner  of 
Corporations 358 

180.  Recent  Fomtis  of  Railway  Discrimination.    William  Z.  Ripley       .  361 


xvm  CONTENTS 

C.    The  Nature  and  Extent  of  Regulation 

PAGE 

i8i.  Complaints  against  the  Railroad  System.    The  CuUom  Committee  364 

182.  The    Provisions   of    the   Interstate    Commerce   Act.    Logan    G. 
McPherson 365 

183.  The  Provisions  of  the  Elkins  Act.    Interstate  Commerce  Com- 
mission          366 

184.  The  Provisions  of  the  Hepburn  Bill.    Logan  G.  McPherson    .       .  367 

185.  The  Mann-Elkins  Act.    Railway  and  Engineering  Review.       .       .  369 

D.    Aspects  of  Rate-Making 

1 86. ^Freight  Classification.    William  Z.  Ripley 370 

187.  Competitive  Factors  in  Rate-Making.    Emery  R.  Johnson  and 
Grover  C.  Huebner 372 

188.  The  Futility  of  Costs  as  a  Basis  for  Rates.    Sydney  Charles  Williams  374 

189.  Charging  What  the  Traffic  Will  Bear.    W.  M.  Ackworth        .       .  377 

190.  The    Rate    Theory    of    the    Interstate    Commerce    Commission. 

M.  B.  Hammond 378 

E.    Valuation  of  the  Railroads 

191.  Necessity  for  Valuation  of  Railway  Property.    Interstate  Com- 
merce Commission 380 

192.  Market  Value  as  a  Basis  for  Rates.    Robert  H.  Whitten         .       .  381 

193.  Physical  Valuation  as  a  Basis  of  Rates.     Samuel  O.  Duim      .       .  382 

194.  The  "Railway-Value"  of  Land.    United  States  Supreme  Court  .  386 

F.    Government  Ownership  of  Railroads 

195.  The  Drift  toward  Government  Ownership.     Frank  Haigh  Dixon   .  388 

196.  Goverrmient  Ownership  as  a  Refuge.     Railway  World      .       .       .  389 

197.  The  Economies  of  Government  Ownership.     Frank  Parsons    .       .  391 

198.  The  Inexpediency  of  Government  Ownership.     Samuel  O.  Durm    .  392 

Vni.     The  Problem  of  Capitalistic  Monopoly 

Introduction 395 

A.    Is  Monopoly  Inevitable? 

199.  The  Pereimial  Problem  of  Monopoly 397 

a)  An  Early  Corner  in  Grain.     Genesis 397 

b)  A  Vindication  of  Philosophy.    Aristotle 398 

c)  An  Early  Use  of  Class  Price.    John  Gower 398 

d)  In  the  Merrie  England  of  Queen  Bess.    David  Hume         .       .  399 

200.  The  Perennial  Protest  against  Monopoly .  400 

a)  A  Proverb  about  Corners.    Proverbs      .       .       .       .       .       .  400 

b)  The  Ethics  of  Monopoly.    Martin  Luther 400 

c)  The  Pests  of  Monopoly.    Sir  John  Culpepper       ....  400 

d)  The  Inexpediency  of  Monopoly.    Adam  Smith     ....  401 

e)  Monopoly  Indefensible.    National  Democratic  Platform    .       .  401 


CONTENTS  xix 


PAGE 


201.  Monopoly,  the  Result  of  Natural  Growth.     George  Gunton    .       .  401 

202.  Monopoly,  the  Result  of  Artificial  Conditions.    Woodrow  Wilson  .  403 

B.      CONBITIONS  OF  MONOPOLIZATION 

203.  The  Failure  of  Competition.    Henry  W.  Macrosty    ....  405 

204.  The  Incentives  to  Monopoly.    Chester  W.  Wright    ....  408 

205.  Large-Scale  Production  and  Monopoly.    Charles  J.  Bullock    .       .  410 

206.  Monopoly  and  Efficiency.    Louis  D.  Brandeis 415 

C.    The  Influence  of  Monopoly  on  Price 

207.  The  Law  of  Monopoly  Price.    Heruy  Rogers  Seager.       .       .       .418 

208.  The  Limits  of  Monopoly  Price.    John  A.  Hobson     .       .       .       .  420 

D.    Types  of  Unfair  Competition 

209.  Competitive  Methods  in  the  Tobacco  Business.  Meyer  Jacob- 
stein    423 

210.  Competitive  Methods  in  the  Cash  Register  Business.  Henry 
Rogers  Seager 424 

2JI.  The  "Tieing"  Agreement.    W.  H.  S.  Stevens 426 

212.  Monopoly  Control  of  Cost  Goods.    W.  H.  S.  Stevens      .       .       .  428 

E.    The  Government  and  Monopoly 

213.  Law  and  the  Forms  of  Combination.    Bruce  Wyman       .       .       .  430 

214.  The  Sherman  Anti-Trust  Act.    United  States  Statutes     .       .       .  433 

215.  The  Meaning  of  Restraint  of  Trade.    United  States  Supreme  Court  434 

216.  Dissolution  of  the  Standard  Oil  Company.    H.  C.  Folger,  Jr.         .  435 

217.  The  Result  of  the  Dissolutions.    Arthur  Jerome  Eddy     .       .       .  436 

218.  An  Appraisal  of  the  Sherman  Act.    AUyn  A.  Young         .       .       .  437 

219.  Provisions  of  the  Clayton  Act.    W.  H.  S.  Stevens     .       .       .       .441 

220.  The  Trade  Commission  and  Clayton  Acts.    W.  H.  S.  Stevens        .  442 

221.  Ultimate  Results  of  Regulating  Combinations.    E.  Dana  Durand  443 

IX.     The  Problems  of  Population 

Introduction 449 

A.    The  Question  of  Numbers 

222.  Utopia  and  the  Serpent.    Thomas  Huxley 451 

223.  Early  Appraisals  of  Population.  An  Early  Historian,  an  Early 
Poet,  Aristotle,  Sir  William  Temple,  Sir  Josiah  Child,  Daniel 
Defoe,  Sir  James  Steuart,  Arthur  Young,  and  Adam  Ferguson  452 

B.    The  Malthusian  Theory 

224.  The  Social  Crisis  at  the  Time  of  Malthus.     Francesco  S.  Nitti     .  455 

225.  The  Theory  of  Population.    Thomas  Robert  Malthus      .               .  457 

226.  Malthusianism  a  Support  of  Capitalism.    Piercy  Ravenstone      •  .  46c 

227.  Malthus  versus  the  Malthusians.    Leonard  T.  Hobhouse        .       .  462 


XX  CONTENTS 

C.    The  Coming  of  the  Immigrant 

228.  The  Falling  Birth-Rate.    Edward  Alsworth  Ross      ... 

229.  The  Immigrant  Invasion.    Frank  Julian  Warne 

230.  Immigration  in  a  Single  Year.    F.  A.  Ogg 

231.  American  Appraisals  of  Immigration 

a)  The  Problem  of  Distribution.    NUes^  Register 

b)  The  Old  Immigration  and  the  New.     S.  F.  B.  Morse  . 

c)  Not  Wops,  but  Irishmen.    Association  on  Condition  of  Poor 

d)  Not  Like  the  Old  Immigrants.    M.  D.  Lichliter  . 

e)  Freedom  of  Opportunity.    Henry  A.  Rodenburg  . 


PAGE 
463 
468 

472 
472 
472 

473 
473 
473 


D.    Immigration  and  Industrial  Development 

232.  Our  Industrial  Debt  to  Immigrants.    Peter  Roberts         .  *     .       .  474 

233.  The  Manna  of  Cheap  Labor.    Edward  Alsworth  Ross      ,       .       .  476 

E.    Immigration  and  Labor  Conditions 

234.  Living  Conditions  among  Home  Laborers.     Charles  Dickens  .       .  477 

235.  The  Standard  of  Living  of  the  New  Immigrants.    I.  A.  Hourwich  .  478 

236.  Immigration  and  Wages.    I.  A.  Hourwich 480 

237.  The  Elevation  of  the  Native  Laborer.    William  S.  Rossiter     .       .•  482 

238.  The  Industrial  Menace  of  the  Immigrant.    Edward  Alsworth  Ross  484 

239.  Immigration  and  Unionism.    W.  Jett  Lauck  ....  488 


F.    The  Further  Restriction  of  Immigration 

240.  The  Menace  of  the  Immigrant  Farmer.    Robert  D.  Ward 

241.  A  Protest  against  Immigration.    United  Garment  Workers 

242.  Consular   Inspection   as   a   Method   of   Restriction.     Broughton 
Brandenburg      

243.  An  Immigration  Program.    The  Immigration  Commission 

244.  The  Pro  and  Con  of  the  Literacy  Test 

a)  The  Necessity  of  the  Educational  Test.    P.  F.  Hall 

b)  Pauperism  and  Illiteracy.    Kate  H.  Claghorn 

c)  From  the  Men  at  the  Gate.    Louis  S.  Amonson   . 

d)  Our  Immigration  Policy.    Woodrow  Wilson  . 

245.  Wanted — An  Immigration  Policy.    New  Republic 


489 

490 

490 
492 
493 
493 
494 
495 
495 
496 


G.    Immigration  and  Our  Future 

246.  The  Economics  of  Immigration.    Frank  A.  Fetter    ....  499 

247.  The  Immigrant  an  Industrial  Peasant  ?    H.  G.  Wells            .         .  501 

248.  The  Influence  of  the  Immigrant  on  America.    Walter  E.  Weyl      .  503 

H.    The  Quality  of  Population 

249.  The  Breeding  of  Men.    Plato               506 

250.  Derby  Day  and  Social  Reform.     Martin  Conway      ....  507 


CONTENTS  xxi 

PAGE 

251.  Eugenics  and  the  Social  Utopia.    George  P.  Mudge         .       .       .  509 

252.  Immigration  and  Eugenics.    Walter  E.  Weyl 509 

253.  The  Rationale  of  Eugenics.    James  A.  Field 5" 

X.     The  Problems  of  Economic  Insecurity 

Introduction 515 

A.    Insecurity  under  Modern  Industrialism 

254.  Competition  and  Personal  Insecurity.    Thomas  Kirkup  .       .       .  517 

255.  ^Machinery  and  the  Demand  for  Labor.    John  A.  Hobson       .       .  519 

256.  Economic  Insecurity  and  Insurance.    William  F.  Willoughby.  522 

B.    Unemployment 

257.  Character  and  Types  of  Unemployment.    W.  H.  Beveridge    .  524 

258.  Wanted:  A  Labor  Exchange.     Gregory  Mason         .       .       .       .526 

259.  Cyclical  Distribution  of  Government  Orders.    Sidney  and  Beatrice 
Webb  . 528 

260.  Insurance  against  Unemployment.    W.  H.  Beveridge  -531 

261.  An  Appraisal  of  Unemployment  Insurance.    William  F.  Willoughby  533 

C.    Industrl4l  Accident 

262.  The  Machine  Process  and  Industrial  Accident.    E.  H.  Downey  534 
^63.  Imputation  of  Responsibility  for  Accidents.    A  Railway  Company  537 

264.  Industrial  Accidents  and  the  Theory  of  Negligence.    Lee  K.  Frankel 

and  Miles  M.  Dawson 538 

265.  The  Incidence  of  Work  Accidents.    E.  H.  Downey    ....  540 

266.  The  Necessity  of  Employer's  Liability.    Adna  F.  Weber         .       .  542 

D.    Sickness  and  Old  Age 

267.  The  Industrial  Cost  of  Sickness.    Joseph  P.  Chamberlain       .       .  543 

268.  WTiy  Sickness  Insurance  Should  Be  Compulsory.    I.  M.  Rubinow  544 

269.  The  British  National  Insurance  Bill.    Warren  S.  Thompson   .       .  546 

270.  Old- Age  Pensions  in  New  Zealand.    W.  P.  Reeves    ....  548 

E.    The  Standard  of  Living 

271.  The  Nature  of  the  Standard  of  Living.     Frank  Hatch  Streightoflf  .  550 

272.  A  Wage-Earner's  Budget.    Louise  Boland  More        .       .       .  552 

273.  Life  at  $1 .  65  a  Day.    Margaret  F.  Byington 554 

274.  A  "Fair  Living  Wage."    Louise  Boland  More 557 

F.    The  Minimum  Wage 

275.  The  Promise  of  a  Minimum  Wage.    A.  N.  Holcombe      .       .       .  558 

276.  The  Case  for  Wage-Boards.     Constance  Smith 559 


xxii  CONTENTS 

PAGE 

277.  The  Progress  of  the  Minimum  Wage.    Florence  Kelley    .       .,      .562 

278.  The  Futility  of  the  Minimum  Wage.    J.  Laurence  Laughlin   .       .     564 
27*9.  Wage-Settlement  by  External  Authority.     S.  J.  Chapman      .       .     567 

280.  A  Minimum  Wage  for  Immigrants.    Paul  U.  Kellogg       .       .       .     569 

G.    Compulsory  Arbitration  and  Wages 

281.  Arbitration  in  New  Zealand.    Hugh  H.  Lusk 571 

282.  Compulsory  Arbitration  in  Theory  and  Practice.    James  Edward 

le  Rossignol  and  William  Downie  Stewart 574 


XI.    The  Problems  of  Trade  Unionism 

Introduction .  577 

A.    Group  and  Class  Consciousness 

283.  Bourgeoisie  and  Proletariat.    Werner  Sombart    .  .       .       -579 

284.  The  Historical  Basis  of  Trade  Unionism.    Sidney  and  Beatrice 
Webb 581 

285.  The  Organization  of  the  Ill-paid  Classes.     Charles  H.  Cooley       .  582 

286.  Types  of  Unionism.    Robert  F.  Hoxie 584 

B.  The  Viewpoints  of  Laborer  and  Capitalist 

287.  The  Sons  of  Martha.    Rudyard  Kipling      .       .       .       .       .       .588 

288.  The  Viewpoint  of  the  Trade  Unionists.    Robert  F.  Hoxie       .       .  590 

289.  Articles  of  Faith 594 

a)  An  Economic  Creed.    National  Association  of  Manufacturers  ,  594 

b)  A  Political  Creed.    National  Association  of  Manufacturers        .  595 

C.  Character  and  Purposes  of  Trade  Unions 

290.  The  Undemocratic  Character  of  Trade  Unions.     Charles  W.  Eliot  596 

291.  An  Employer's  View  of  Trade  Unions.    Andrew  Carnegie       .       .  599 

292.  The  Purposes  of  Trade  Unionism.    John  Mitchell     ....  600 

D.    The  Theory  of  Unionism 

293.  The  Principle  of  Uniformity.    Robert  F.  Hoxie         ....  602 

294.  Collective    Bargaining    and    the    Trade    Agreement.      John    R. 
Commons 605 

295.  The  Economics  of  the  Closed  Shop.    Frank  T.  Stockton         .       .  608 

296.  The  Ethics  of  the  Closed  Shop.    James  H.  Tufts      .       .       .       .613 

E.    The  Weapons  of  Industrial  Conflict 

297.  The  Function  of  the  Strike  in  Collective  Bargaining.    John  Mitchell  614 

298.  The  Utility  of  the  Strike.    Frank  Julian  Warne        .       .       .       .615 

299.  The  Striker  and  the  Worker.     Solon  Lauer 617 

300.  Wanted— Jobs  Breaking  Strikes.    Joy  Detective  Agsrcy        .       .  618 


CONTENTS  xxiii 

PAGE 

301.  The   Efficacy   of   Secret   Service.    William   J.   Burns   Detective 
Agency 618 

302.  The  Boycott  of  the  Butterick  Company.    A.  J.  Portenar        .       ,  618 

303.  Ostracism  as  an  Industrial  Weapon.    Frank  Julian  Wame      .       .620 

304.  The  Scab.    Dyer  D.  Lmn 622 

F.    Scientific  Management  and  Unionism 

305.  Labor  and  Efficiency.    Frederick  W.  Taylor              .     ^.       .       .  624 

306.  The  Nature  of  Scientific  Management.    Maurice  L.  Cooke     .       .  626 

307.  The  Attitude  of  Organized  Labor  toward  Scientific  Management. 
American  Federation  of  Labor    " 628 

308.  Modem  Industry  and  Craft  Skill.    International  Moulders^  Journal    628 

G.    Unionism  and  the  Anti-Trust  Laws 

309.  The  Monopoly  of  Labor.    William  H.  Taft 630 

310.  The  Charter  of  Industrial  Freedom.    Samuel  Gompers    .       .       .632 

311.  Legal  Exemption  of  Labor  Combinations.    Alljoi  A.  Yoimg    .       .  634 

H.    Revolutionary  Unionism 

312.  Sabotage 637 

a)  A  Definition  of  Sabotage.    Arturo  M.  Giovannitti       .       .       .637 

b)  Go  Cannie.    Arturo  M.  Giovannitti 637 

c)  Put  Salt  in  the  Sugar.    Montpelier  Labor  Exchange  .       .       .  638 

d)  The  Effectiveness  of  Sabotage.    Arturo  M.  Giovannitti      .       .  639 

e)  The  Universality  of  Sabotage.    .Industrial  Worker               .       .  640 

313.  Industrial  versus  Trade  Unionism.    Mary  K.  O'Sullivan         .       .  641 

314.  The  Standpoint  of  Syndicalism.    Louis  Levine 642 

315.  The  General  Strike.    Arthur  D.  Lewis 644 

Xn.     Social  Reform  and  Legal  Institutions 

Introduction 647 

A.  The  Legal  System 

316.  The  Economic  Basis  of  Law.    Achille  Loria 649 

317.  Social  Rights  and  the  Legal  System.    Roscoe  Pound        .       .       .  651 

318.  Law  and  Social  Statics.    Oliver  W.  Holmes 654 

319.  The  Social  Function  of  Law.    Homer  Hoyt 654 

B.  Private  Property 

320.  The  Development  of  the  Right  of  Property.     George  B.  Newcomb  658 

321.  Property  and  Stewardship.     Saint  Basil 660 

322.  The  Ethics  of  Property.    Pierre  Joseph  Proudhon     ....  660 

323.  Progress  and  Property.    Paul  Elmer  More 661 

324.  Mine — Property  and  Rights.    David  M.  Parry         ....  664 

325.  My  Apolog)'.     P.  Property 666 


XXIV  CONTENTS 

C.    Industrial  Liberty 

PAGE 

326.  The  Mediatory  Character  of  Freedom.    Thomas  Hill  Green   .       .  669 

327.  Contract  and  Co-operation.    Henry  Sidgwick 670 

328.  Contract  and  Personal  Responsibility.    Arthur  Twining  Hadl^    .  670 

329.  Labor  and  Freedom  of  Contcact.     Chicago  Industrial  Exhibit        .  673 

330.  Static  Assumptions  of  Contractual  Freedom.     Roscoe  Pound        .  674 

331.  Contractual  Rights — ^Legal  and  Real.    Thorstein  B.  Veblen    .       .676 

D.    The  Courts  and  Labor 

332.  Limitation  of  the  Working  Day  for  Women        ......  678 

a)  The  Supremacy  of  Freedom  of  Contract.    Illinois  Supreme 
Court 678 

b)  The  Supremacy  of  the  Police  Power.    Nebraska  Supreme  Court  679 

c)  Maternity    and    State    Regulation.    United    States    Supreme 
Court 680 

333.  Reciprocal  Nature  of  Employer's  and  Employee's  Rights.    United 
States  Federal  Court 680 

334.  The  Danbury  Hatters'  Case.    Harry  W.  Laidler       ....  682 

335.  A  Legal  Criticism  of  the  Injunction.     Charles  Claflin  Allen     .  685 

336.  Unionism  and  the  Conditions  of  Employment.    United   States 
Supreme  Court 686 

Xm.     Social  Reform  and  Taxation 

Introduction 690 

A.    Taxation  and  Industrial  Development 

337.  Expenditures  and  Social  Organization.    Henry  Carter  Adams  692 

338.  Taxation  as  a  Means  of  Social  Control.    Adolph  Wagner        .       .  693 

339.  Taxation  and  Technical  Development.    J.  R.  McCuUoch        .       .  695 

B.    The  Theory  of  Taxation 

340.  Canons  of  Taxation.    Adam  Smith 696 

341.  The  Burden  of  Taxation.    S.  J.  Chapman 697 

C.    The  Incidence  of  Taxation 

342.  Incidence  and  Industrial  Organization.    A.  W.  Flux         .       .     •  .  699 

343.  The  Burden  of  the  Tariff  Tax.    Liberal  Party  Pamphlet         .  702 

344.  The  Incidence  of  the  Customs  Tax.    Edwin  R.  A.  Seligman  .       .  704 

D.    "Unscientific"  Taxation 

345.  Defects  of  the  General  Property  Tax.    National  Tax  Association  .  706 

346.  Multiple  Taxation.    Theodore  Sutro 708 


CONTENTS 


xrv 


E.    Tendencies  in  Taxation 

PACE 

347.  The  Massachusetts  Corporation  Tax.    Commissioner  of  Corpora- 
tions     710 

348.  The  Federal  Income  Tax.    Edwin  R,  A.  Seligman  .       .       .713 

349.  Public  Capitalization  of  the  Inheritance  Tax.    Alvin  S.  Johnson    .     717 

F.    The  Single  Tax 

350.  The  Increase  in  Land  Values 720 

720 
721 
721 
721 
722 

723 
724 

351.  The  Social  Injustice  01  Kent.    ±ienry  ueorge 724 

352.  The  Theoretical  Basis  of  the  Single  Tax.    C.  B.  Fillebrown    .       ,     725 

353.  A  Criticism  of  the  Single  Tax.    Charles  J.  Bullock    .       .       .       .726 


a)  Land  Values  in  the  Fifteenth  Century.    Therold  Rogers    . 

b)  Rents  in  the  Sixteenth  Century.    Hugh  Latimer 

c)  The  Power  of  Landlords.    Thomas  Spence    .... 

d)  The  Influence  of  Rent  on  Trade  and  Commerce.    A.  O'Connor 

e)  A  Land  Boom  in  Iowa.    Alfred  Russel  Wallace    . 

f)  The  Social  Importance  of  Rent.    Alfred  Russel  Wallace     . 

g)  The  Benefits  of  Improvement.    Adolph  Wagner  . 
The  Social  Injustice  of  Rent.    Henry  George     .... 
The  Theoretical  Basis  of  the  Single  Tax.    C.  B.  Fillebrown    , 
A  Criticism  of  the  Single  Tax.    Charles  J.  Bullock    . 


XIV.     Comprehensive  Schemes  of  Social  Reform 
Introduction 728 


354- 


355' 


356. 


A.    The  Voice  of  Social  Protest 


Privilege  and  Power 

a)  Woe  to  the  Idle  Rich.    Amos  .... 

b)  The  Daughters  of  Zion.    Isaiah 

c)  WTiy  the  Lords?    John  Ball 

d)  Government  and  Inequality.     Sir  Thomas  More 

e)  The  Possibilities  of  Production.    Richard  Jeffrey 

f)  The  Beginning  of  It  All.    J.  J.  Rousseau 
"Progress  and  Poverty" 

a)  In  the  Wake  of  Trade.    Oliver  Goldsmith     . 

b)  When  There  Was  a  Frontier.    J.  B.  Mc^Iaster 

c)  Labor  and  Value.    Poorman's  Guardian 

d)  The  Poor  in  Manchester.    Frederick  Engels 

e)  Packingtown  as  a  Residential  Section.    A.  M.  Simons 

f)  Hallelujah  on  the  Bum.    Songs  of  the  Workers 
Expanding  Wants  and  Social  Unrest.    A  Cape  Cod  Fisherman 

B. 


729 
729 
730 
730 
730 
731 
731 
732 
732 
732 
733 
734 
734 
735 
736 


Individualistic  Schemes  of  Reform 

357.  Scrub-Humanity.    Solon  Lauer 736 

358.  The  Promise  of  Co-operation.     Francis  G.  Peabody  ....  737 

359.  " U.S.  Steel "  and  Labor.    Raynal  C.  Boiling 739 

360.  Labor  and  "U.S.  Steel."    John  A.  Fitch 742 


XXVI  CONTENTS 

C.    The  Socialist's  Indictment  of  Capitalism 

PAGE 

361.  Marx's   Theory   of   the   Development   of   Capitalism.       Werner 
Sombart 745 

362.  The  Economic  Failure  of  Capitalism.     J.  Ramsey  Macdonald       .  748 

D.    The  Case  for  Socialism 

363.  The  Distinction  between  Socialism  and  Communism.    M.  Tugan- 
Baranowsky 751 

364.  The  Central  Aim  of  Socialism.    Thomas  Kirkup       ....  752 

365.  Property  and  Industry  under  Socialism.    John  Spargo     .       .       .  754 

E.    Socialist  Arguments  for  the  Masses 

366.  Capitalism — ^A  Vampire  System.     George  E.  Littlefield    .       .       .  757 

367.  "My  Papa  Is  a  Socialist."    Harvey  P.  Moyer 758 

368.  The  Capitalist's  Ten  Commandments.    W.  Willis  Harris.       .       .  759 

369.  A  Confession  of  Faith.     Progressive  Thought 760 

F.    Socialist  Programs 

370.  The  National  Platform  of  the  Socialist  Party 761 

371.  Municipal  and  State  Program.    Socialist  Campaign  Book        .       .  766 

G.    The  Case  against  Socialism 

372.  The  Transition  to  the  Socialist  State.    O.  D.  Skelton       .       .       .  769 
373    Socialism  and  Inequality.    N.  G.  Pierson 770 

374.  Some  Objections  to  Socialism.    William  Graham       ....  773 

375.  Socialism  and  the  Factors  of  Production 774 

H.    Social  Panaceas 

376.  Stable  Money  and  the  Future.     George  H.  Shibley  ....  777 

377.  The  Way  Out.    John  Raymond  Cummings 778 

378.  Universal  Federation.    King  C.  Gillette 778 

379.  A  New  Earth.    L.  G.  Chiozza  Money 780 

I.    Economics  and  the  Future  of  Society 

380.  Wanted:  A  New  Symbolism.    Alvin  S.  Johnson       ....  783 

381.  The  Banquet  of  Life.    William  Graham  Sumner       ....  785 

382.  Progress  and  Discontent.    Thomas  Babington  Macaulay      .         .  788 


INTRODUCTION 
I.    The  Study  of  Current  Economic  Problems 

In  this  day  of  rapidly  changing  vakies,  particularly  in  economic 
life  and  thought,  one  cannot  publish  even  so  unpretentious  a  work 
as  a  book  of  readings  without  offering  an  explanation.  The  reader 
desires  to  know  the  scope  of  the  volume,  the  principles  governing 
the  selection  and  arrangement  of  the  materials  which  compose  it, 
how  it  is  to  be  used,  and  the  objects  which  it  is  supposed  to  accom- 
pHsh.  In  short,  he  asks  for  the  theory  of  the  book ;  and  this  is  the 
purpose  of  these  introductory  pages  to  furnish. 

The  title  commits  the  volume  to  the  domain  of  current  economic 
problems ;  but  currency  is  not  a  mere  matter  of  the  transitory  and 
ephemeral  aspects  of  economic  life,  such  as  are  noted  in  the  morn- 
ing paper.  The  most  recent  industrial  merger,  the  latest  bit  of 
legislation,  the  court  decision  just  announced  do  not  mark  out  its 
province.  The  economic  questions  currently  discussed  and  subject 
to  immediate  political  action  do  not  fix  its  bounds.  Such  things 
as  these,  distinct  as  they  seem  to  be,  are  mere  passing  phases  of 
larger  and  more  complex  problems.  For  their  beginnings  we  must 
look  into  the  far-distant  past;  their  ends  it  is  not  yet  vouchsafed 
to  us  to  see.  They  are  in  process  of  gradual  solution.  The  issues 
which  they  involve  are  much  more  intricate  and  subtle  and  much 
less  comprehensible  than  their  immediate  aspects  would  seem  to 
indicate.  In  form  and  content  each  is  closely  identified  with  the 
stage  of  industrial  development  which  we  have  reached.  Each  in- 
volves something  of  almost  every  phase  of  our  complicated  social 
life.  As  separate  problems  they  are  merely  aspects  of  a  larger 
reality.  If,  then,  we  would  understand  them  aright,  we  must  study 
them  in  their  historical  setting  as  incidents  in  the  development  of 
society. 

Their  essential  unity  makes  the  word  problems  in  the  title  un- 
fortunate. The  term  seems  to  imply  the  separate  treatment  of  a 
number  of  loosely  connected  questions.  The  editor  disclaims  such 
pretentiousness  in  his  use  of  it.  He  has  no  intention  of  presenting 
an  aggregation  of  summaries  from  many  particular  fields  of  eco- 
nomic knowledge.  He  purports  to  give  no  epitome  of  a  dozen  different 
volumes  discussing  as  many  different  problems.  In  this  book  he 
can  neither  make  use  of  the  methods,  nor  accomplish  the  results,  of 
advanced  study.    A  proper  understanding  of  each  of  these  problems 


X3r/"i  INTRODUCTION 

is  contingent  upon  a  mastery  of  the  workings  of  some  very  intricate 
economic  machinery,  a  careful  examination  of  a  large  amount  of 
factual  material,  a  painstaking  analysis  and  interpretation  of  the 
phenomena  of  the  field  of  study,  and  an  elaboration  of  the  con- 
clusions drawn  from  it.  To  attempt  such  a  task  for  each  of  the 
problems  presented  here  in  the  space  available  is  impossible;  it 
would  result  in  a  mere  formal  presentation  of  half-truths.  The 
object  of  this  volume  is  of  another  kind ;  it  is  introductory.  It  at- 
tempts to  present  a  general  view  of  the  whole  as  a  necessary  pre- 
liminary to  a  study  of  particular  problems.  So  far  as  the  latter  are 
separately  treated,  they  are  presented  as  aspects  of  the  larger  whole. 

A  study  of  problems  implies  a  search  for  answers.  But,  if  this 
volume  is  to  be  judged  by  its  ability  to  supply  the  earnest  student 
with  the  right  answer  to  each  of  the  questions  it  discusses,  it  must 
indeed  be  found  a  dismal  failure.  The  number  of  problems  with 
which  it  deals  precludes  the  detailed  study  which  should  precede 
the  formation  of  "final"  opinions.  Besides,  it  is  extremely  doubtful 
whether  the  problems  of  industrial  society  can  be  settled  dog- 
matically. As  economists  we  can,  and  should  perhaps,  dogmatize 
about  such  principles  as  "the  law  of  diminishing  returns."  But  no 
economic  problem  can  be  resolved  by  the  application  of  a  single 
simple  law;  it  is  part  of  a  situation  much  too  complex  and  subtle 
and  peculiar  for  that.  Nor  can  it  be  made  to  yield  to  the  magic 
that  lies  in  a  separation  of  all  proposals  into  the  two  simple  classes 
of  the  "good"  and  the  "bad."  Nor  yet  can  its  solution  emerge  as 
the  result  of  a  process  of  calculating  resulting  utilities  and  dis- 
utilities. Every  proposal  involves  a  distribution  of  costs  and  utilities 
between  the  present  and  the  future,  and  between  different  classes  in 
society.  It  has  not  one,  but  many,  economic  consequences,  good 
and  bad.  It  is  sure  to  affect  in  countless  ways,  for  better  or  for 
worse,  the  legal,  political,  ethical,  religious,  and  social  aspects  of 
life.  There  is  no  magical  instrument  of  measurement  which  can 
unlock  such  a  riddle  by  promising  that  a  certain  definite  surplus 
of  good  or  ill  will  follow  the  application  of  a  given  proposal.  Such 
values  are  incommensurable  by  any  known  instrument  of  calculation. 

Yet,  to  make  judgments  in  the  face  of  these  complex  schemes  of 
incommensurable  values  is  the  essence  of  the  problems  which  we 
are  to  discuss.  If  their  solutions  are  to  be  advanced,  if  industrial 
society  is  to  develop,  such  judgments  must  be  made.  We  cannot 
blink  the  fact  that  every  proposal  advanced  involves  both  the  good 
and  the  bad,  the  desirable  and  the  undesirable.  We  cannot  forget 
that  to  get  some  of  the  good  things  we  want,  we  must  give  up  other 
good  things;  that  to  escape  some  of  the  costs  we  are  unwilling  to 


INTRODUCTION  ixix 

incur,  we  must  endure  others.  In  short,  the  "solution"  of  an  eco- 
nomic problem  involves  a  choice  between  conflicting  and  incom- 
mensurable values.  The  decision  which  it  requires  transcends  the 
utmost  that  can  be  pent  up  in  any  strictly  economic  terms;  it  is 
contingent  upon  nothing  less  than  our  ideal  of  the  socially  desirable. 
But,  if  our  efforts  are  to  be  effective,  we  must  aim  at  the  attainable. 
We  must  take  full  account  of  the  limitations  imposed  upon  the 
"solution"  of  problems  by  contemporary  activities,  prevailing  insti- 
tutions, and  the  attitudes  of  the  various  classes  which  make  up 
society.  In  view  of  the  large  economic  and  intellectual  environment 
surrounding  them,  economic  problems  are  not  suddenly  to  be  dis- 
posed of ;  definite  and  final  answers  are  not  to  be  found  for  them. 
Rather  they  are  gradually  to  be  solved ;  they  must  have  everdevelop- 
ing  answers. 

Upon  this  theory  of  a  choice  between  conflicting  and  incom- 
mensurable values  the  readings  which  follow  have  been  selected. 
They  come  from  the  most  miscellaneous  sources.  They  represent  all 
the  prominent  attitudes,  from  the  most  conservative  to  the  most 
radical,  which  condition  the  direction  of  our  development.  They 
are  written  by  men  possessed  of  the  widest  variety  of  opinion — 
economic,  political,  and  sociological.  They  represent  emotionally  as 
well  as  intellectually  (for  feelings  count  as  strongly  as  logic  in  the 
practical  affairs  of  our  everyday  world)  the  conflicting  views  and 
arguments  which  contemporary  society  is  bringing  to  bear  upon  its 
problems.  They  contain  sound  argument,  good  judgment,  truth. 
They  contain,  too,  much  of  overstatement,  fallacious  reasoning,  and 
falsehood.  But  all  are  important  for,  sound  or  unsound,  true 
or  false,  they  are  active  elements  of  the  problems  we  would  solve. 
The  reader  should  not  too  definitely  attempt  to  separate  them  into 
the  "true"  and  the  "false."  All  thought  is  conditioned  by  its  funda-, 
mental  assumptions.  Matters  of  personality,  of  class,  of  time,  and  of 
place  manage  to  make  their  way  into  all  intellectual  work.  Those 
who  regard  themselves  as  most  immune  are  frequently  most  subject 
to  these  disturbing  influences.  Undoubtedly  fundamental  differences 
about  economic  programs  frequently  grow  out  of  the  possession  or 
non-possession  of  the  "facts."  But  far  oftener  they  are  due  to 
conflicting  attitudes  which  represent  endeavors  to  find  social  good  by 
generalizing  individual  interests.  Some  such  study  is  necessary  to 
a  clear  appreciation  of  the  many  conflicting  values  involved  in  the 
conscious  judgments  upon  which  the  solution  of  our  problems 
depend. 

In  quite  another  way,  the  miscellaneous  character  of  these  read- 
ings should  prove  valuable.    They  should  help  the  reader  to  approach 


XXX  INTRODUCTION 

economic  questions  without  personal  or  class  bias;  they  should 
lead  him  to  see  that  his  own  opinions,  despite  the  authority  of  their 
source  and  their  venerable  age,  are  not  necessarily  the  expression 
of  economic  verity ;  and  they  should  induce  in  him  some  willingness 
to  hold  in  abeyance  his  judgment  on  economic  questions.  Vital  and 
valid  arguments  in  support  of  a  proposition  in  which  one  thor- 
oughly disbelieves  should  do  much  to  prevent  haste  in  the  formation 
of  his  final  judgments.  Even  erroneous  arguments  have  their  peda- 
gogical value.  Stimulation  is  by  provocation  as  well  as  by  sug- 
gestion ;  and  it  is  hoped  that  more  than  one  of  the  readings  which 
follow  will  provoke  the  reader  into  a  more  careful  formulation  of 
his  opinions  and  a  clearer  statement  of  his  reasons  for  possessing 
them.  Above  all,  it  is  hoped  that  in  a  constructive  way  they  may 
give  the  beginnings  of  a  flexible  and  developing  economic  program. 
Its  fulness  can,  and  should,  come  with  time,  study,  and  reflection. 
It  cannot  be  denied  that  many  of  the  readings  touch  upon  ques- 
tions which  many  think  cannot  be  discussed  without  "danger  to 
society";  and  that  others  present  views  which  "threaten  to  subvert 
our  institutions."  Fortunately  the  disposition  to  exclude  "dangerous 
subjects"  and  "dangerous  views"  from  academic  discussion  is  much 
less  pronounced  than  it  used  to  be.  There  seems  to  the  editor  little 
doubt  that  the  danger  is,  if  not  altogether  absent,  at  least  unduly 
magnified.  To  the  extent  that  it  is  real,  however,  an  injunction 
against  discussion  is  not  the  proper  method  of  minimizing  it.    The 

.safe  course  lies  rather  in  getting  students  to  think  clearly  in  terms 
of  economic  situations  and  to  recognize  in  this  thinking  the  many 
fundamental  economic  values  which  usually  fail  of  popular  con- 
sideration. The  erection  of  signs  prohibiting  trespass  is  tjie  best 
method  of  enticing  college  students  into  forbidden  fields  of  discus- 

,sion.  Much  better  is  it  to  invite  to  this  forbidden  territory  under 
proper  guidance.  It  is  hoped  that  the  selections  which  follow  will 
reveal  some  of  these  values  and  will  do  something  to  induce  intelli- 
gent thought. 

To  the  end  of  showing  the  setting  of  our  current  problems  and 
the  many  conflicting  values  which  they  involve,  the  book  has  been 
made  to  consist  of  a  large  number  of  short  readings  rather  than  a 
small  number  of  long  ones.  Whatever  may  be  the  value  of  the 
latter  type  of  manual  for  advanced  work,  its  usefulness  in  elementary 
instruction  is  largely  its  power  of  compelling  labor.  A  small  number 
of  readings  cannot  at  all  cover  the  field  adequately ;  they  cannot 
furnish  a  clear  perspective  of  the  subject  as  a  whole ;  they  cannot 
introduce  economic  problems  in  their  larger  setting.  They  contain 
much  extraneous  matter;  they  include  discussions  of  subtle  points 


INTRODUCTION  xxxi 

lost  on  all  except  advanced  students ;  and  they  are  prone  to  cause  the 
student  to  lose  the  main  issues  in  a  world  of  detail.  They  commit 
the  fundamental  error  of  attempting  to  exhibit  the  particulars  before 
the  student  has  seen  the  whole.  They  make  it  difficult  for  the 
average  student  to  discriminate  between  the  accidental  and  the 
essential ;  and  too  frequently  their  use  leads  to  a  substitution  of 
heroic  clerical  work  for  intellectual  exertion.  In  the  readings  here 
presented  an  attempt  has  been  made  to  eliminate  the  non-essential 
and  the  confusing. 

This  induced  simplicity  is  not  intended  to  convey  .the  idea  that 
the  problems  involved  are  simple,  and  that  social  economics  is  a 
subject  which  can  easily  be  "mastered."  On  the  contrary,  few 
teachers  will  be  tempted  to  charge  this  volume  with  an  elucidation 
of  the  merely  obvious.  On  the  contrary,  the  very  difficulty  of  the 
subjects  treated  makes  it  necessary  that  the  many  and  conflicting 
arguments  be  presented  as  simply  and  definitely  as  possible.  One 
of  the  functions  of  the  book  is  to  show  the  difficulty  and  complexity 
of  the  problems.  Perhaps  nothing  is  doing  more  to  complicate  the 
solution  of  our  problems  at  the  present  time  and  to  prevent  the 
elaboration  of  a  definite  program  than  the  belief  of  so  many  people 
that  these  same  problems  are  simple  and  easily  understood,  and 
that  "evils"  are  responsive,  to  simple  prescriptions.  To  convey  the 
idea  of  s-implicity  and  intelligibility,  when  these  are  not  of  the  sub- 
ject discussed,  is  to  fail  on  the  very  threshold  of  economic  study. 

In  an  introductory  course,  the  primary  desideratum  is  not  the 
acquisition  by  the  student  of  facts  and  formulas,  which  he  can  hand 
back  at  examination,  having  no  further  use  for  them.  It  is  rather 
to  induce  on  his  part  a  developing  appreciation  of  the  situation  as 
a  whole  and  of  the  relation  of  institutions  and  problems  to  each  other 
and  to  it.  It  is  more  desirable  that  he  come  to  understand  the  sub- 
ject than  that  he  amass  formal  knowledge  about  it.  It  is  preferable 
that  he  learn  to  think  intelligently  in  terms  of  a  complex  industrial 
situation  than  that  he  acquire  a  vast  collection  of  "principles"  that 
formally  explain  its  working.  The  readings  are  intended  to  supply 
not  factual  material  upon  which  the  student  can  be  quizzed,  but 
rather  matter  that  will  raise  questions  and  provoke  thought.  They 
are  intended  to  prepare  for  recitation  by  giving  the  instructor  and 
the  students  something  to  discuss  together.  The  function  of  the 
instructor  is  to  direct  and  guide  the  discussion,  and  to  see  that  the 
thought  of  the  students  is  intelligent  and  intelligible. 

It  is  no  part  of  the  function  of  this  volume,  therefore,  to  lighten 
the  instructor's  labors.  Ease  and  a  shifting  of  responsibility  can 
better  be  found  in  the  formal  lecture  or  in  quizzing  from  a  text.  The 


xxxii  INTRODUCTION 

editor  believes  quite  firmly  that  the  value  of  any  course  in  economics 
is  pretty  much  what  the  instructor  makes  it.  He  is  the  factor  of 
vital  importance.  If  the  course  is  to  be  successful  in  aiding  the 
student  properly  to  begin  the  long-to-be-continued  process  of  getting 
a  fair  conception  of  the  economic  world  and  of  formulating  an 
economic  program,  it  must  be  the  instructor's  own  course.  He  alone 
knows  the  factors  involved  in  his  own  classroom  problem.  He 
must  determine  its  content,  fix  its  arrangement,  and  shape  the  tools 
which  he  uses  to  ^,ts  peculiar  need.  Books,  problems,  and  other 
pedagogical  devices  are  at  best  but  instruments.  If  a  book  of  this 
kind  has  any  advantage  over  a  formal  text,  it  is  in  the  freedom  which 
it  allows  to  instructor  and  student,  both  in  making  the  most  of  the 
recitation  and  in  the  ordering  of  the  course.  Wherever  it  is  used, 
unity  must  come,  not  from  the  book  itself,  but  from  the  teacher's 
own  plan,  and  from  his  skilful  use  of  the  complementary  tools  he 
employs.  The  function  of  this  volume  is  to  give  not  leisure,  but 
intellectual  liberty. 

2.     Economic  Problems  as  Aspects  of  Social  Development 

It  is  in  the  economic  world  of  here  and  now  that  we  are  inter- 
ested. Amid  its  complex  of  activities,^  institutions,  conventions, 
ideals,  standards,  and  modes  of  thought  we  order  our  lives.  Its 
multifarious  and  baffling  problems  are  our  problems — ours  to 
"muddle"  or  to  "solve."  How  we  handle  them  will  determine  quite 
largely  what  the  economic  world  of  tomorrow  is  to  be  like.  For 
these  problems  are  aspects  of  our  industrial  system;  they  are  inci- 
dents in  the  development  of  our  economic  society.  They  emerge, 
or  assume  new  forms,  as  th€  larger  whole  develops.  With  its  onward 
sweep  severally  they  pass  into  oblivion,  lose  themselves  in  new 
problems,  assume  unfamiliar  forms,  or  otherwise  manage  to  get 
"solved."  They  are  not  distinct  things;  they  cannot  be  detached 
from  the  larger  scheme  of  affairs  to  which  they  belong.  They 
cannot  be  disposed  of  in  isolation,  as  if  the  universe  were  one  thing 
and  each  of  them  another.  They  are  intimately  associated  with 
each  other,  with  the  economic  system  to  which  they  belong,  and  with 
the  larger  world,  which  includes  the  legal,  political,  ethical,  social, 
and  all  other  aspects  of  life  economic  and  non-economic.  To  under- 
stand them  aright  we  must  know  something  of  this  larger  whole  in 
its  current  manifestations. 

In  its  rapid  development  our  society  is  approaching  the  end  of 
what,  in  no  invidious  sense,  we  may  call  the  exploitative  period.  Our 
development  in  the  nineteenth  century  was  dominated  by  our  stores 


INTRODUCTION  xxxiii 

of  natural  wealth  and  by  the  use  of  an  expanding  and  developing 
machine  technique.  The  century  witnessed  the  conquest  of  a  con- 
tinent, seemingly  possessed  of  never- failing  resources.  The  gifts 
of  forest,  waterfall,  stream,  soil  and  mine,  by  the  magic  touch  of 
modern  technique,  were  transformed  into  a  golden  stream  of  wealth. 
The  expanding  system  absorbed  larger  and  larger  volumes  of  capital 
and  increment  after  increment  of  alien  labor.  Its  object  and  end  was 
prosperity. 

This  process  of  getting  rich  absorbed  quite  largely  our  attention 
and  our  energy.  Our  thought  was  for  virgin  fields  for  machine 
effort.  Our  impatience  was  at  the  slowness  of  our  ver}'  rapid  in- 
dustrial development.  Our  powers  of  control,  so  far  as  they  were 
consciously  used,  were  aimed  at  speeding  up.  We  made  no  in- 
quisitive search  into  our  legal  arrangements,  our  fundamental 
■institutions,  or  our  ethical  standards.  We  did  not  perceive  that 
development  in  one  aspect  of  life  leaves  incompatibilities  that  need 
attention.  It  did  not  readily  occur  to  us  that  improvement  should 
occur  elsewhere  than  in  the  technique  of  production,  the  growth 
of  business  organization,  and  the  expansion  of  the  pecuniary  system. 
In  short,  we  neither  tried  to  discover,  nor  succeeded  in  discovering, 
society.  We  had  problems,  of  course — many  more  than  we  had 
need  for.  But  they  were  concerned  with  removing  the  barriers 
that  opposed  the  establishment  of  a  pecuniary  system  on  a  nation- 
wide plan. 

This  neglect  of  the  non-industrial  side  of  life  expressed  itself 
most  conspicuously  in  a  formidable  and  overgrown  individualism. 
Since  we  were  growing  wealthy,  all  was  well.  We  rarely  thought 
of  attributing  responsibility  for  what  we  did  not  like  to  society,  in- 
stitutions, conditions,  or  environment.  Quite  as  rarely  did  we 
attribute  prosperity  to  the  abundance  of  our  natural  resources.  We 
firmly  believed  that  each  individual  "was  master  of  his  fate";  that 
"opportunity  knocks  once  at  every  gate" ;  that  "there  is  plenty  of 
room  at  the  top" ;  and  that  successful  men  are  "self-made." 

This  habit  of  thought  worked  its  way  into  the  whole  range  of  our 
institutions.  A  fundamental  assumption  of  individualism  was  that 
all  men  -were  equal.  A  resulting  principle  of  action  was  that  the 
state  should  give  "equal  rights  to  all,  and  special  privileges  to  none." 
Equality  suggested  the  attainment  of  political  wisdom  by  calculation. 
Accordingly  the  object  of  legislation  was  "the  greatest  good  to  the 
greatest  number."  Since  each  person  possessed  one,  and  only  one, 
vote,  it  was  evident  that  our  government  was  a  democracy.  In 
ethics  our  conduct  was  measured  by  individualistic  standards.  In 
education,  by  setting  up  the  system  of  free  electives,  we  made  the 


xxxiv  INTRODUCTION 

individual  student  the  best  judge  of  the  training  that  was  good 
for  him.  In  economics  our  attention  was  given  very  largely  to  the 
market;  the  distribution  of  wealth  and  proposals  of  social  reform 
were  alike  treated  as  if  they  were  mere  questions  of  value  theory; 
and  we  elaborated  and  generally  accepted  the  doctrine  that  one 
"gets  what  he  produces."  Even  our  religious  systems  were  char- 
acterized by  an  intense  and  dogmatic  individualism. 

It  was,  perhaps,  inevitable  that  we  should  not  escape  looking  at 
things  too  narrowly.  We  manifested  a  contempt  for  philosophy 
and  general  theory.  We  encouraged  specialization,  but  overlooked 
the  broad  and  general  training  which  should  underlie  it.  We  in- 
vestigated particular  subjects  without  knowing  the  general  fields  to 
which  they  belonged.  We  attempted  to  resolve  phenomena  into 
general  schemes  without  understanding  the  laws  which  govern  the 
phenomena.  We  formulated,  analyzed,  and  attempted  to  solve  our 
problems  as  if  they  were  so  many  distinct  entities.  We  saw  the 
whole  only  as  an  aggregation  of  parts,  and  society  only  as  a  collec- 
tion of  individuals. 

Closely  associated  was  a  notion  of  social  change  in  mechanical 
terms.  When  we  became  impatient  with  this  or  that,  we  demanded 
an  immediate  remedy.  We  turned  to  the  state  as  the  obvious  agent, 
one  which  we  professed  to  distrust,  and  demanded  legislation.  If 
our  attention  was  not  distracted  by  some  new  "abuse,"  we  usually 
turned  out  the  party  in  power  if  immediate  results  were  not  forth- 
coming. Even  our  reformers  usually  gave  us  panaceas  for  all  social 
ills,  or  demanded  a  reconstruction  of  the  whole  scheme  of  life. 

Many  of  our  highest  social  values  are  associated  with  individual- 
ism. Its  note  must  be  retained  to  keep  the  system  from  being  re- 
solved into  an  orderly,  mechanical,  prosaic,  and  dull  scheme  of 
things.  Without  it,  it  is  hard  to  see  how  society  can  most  fully 
utilize  its  capacity  for  development.  In  the  America  of  the  nine- 
teenth century  it  helped  to  solve  the  problems  of  a  young  society 
as  perhaps  nothing  else  could  have  done.  The  individual  pluck, 
energy,  and  initiative  which  it  called  forth  were  just  the  qualities 
necessary  to  the  gigantic  and  crude  stage  of  development  through 
which  the  country  was  passing.  It  remains  in  the  present,  however, 
in  a  very  dominant  form,  thoroughly  ingrained  in  our  institutions 
and  in  the  social  philosophy  of  classes  which  occupy  quite  important 
positions  in  society. 

But  for  some  time  we  have  been  conscious  that  we  are  approach- 
ing the  end  of  this  exploitative  period.  We  have  by  no  means  reached 
the  end  of  our  resources;  but  we  have  come  to  see  that  they  are  no 
longer  boundless.    It  is  evident  that  there  is  real  danger  of  wasting 


INTRODUCTION  xxxv 

our  patrimony.  Opportunities  for  sudden  wealth  are  no  longer 
plentiful.  We  have  awakened  to  the  necessity  of  economy,  of  giving 
long  and  careful  thought  to  our  social  arrangements.  We  are 
beginning  to  find  out,  too,  that  our  prosperity  has  entailed  jts  costs. 
We  gave  conscious  thought  to  securing  a  well-developed  machine- 
system,  a  large  population,  and  a  large  measure  of  individual  liberty, 
believing  that  these  would  bless  us  with  wealth.  We  succeeded  in 
securing  these  things.  But  we  neglected  to  take  thought  for  the 
cultural  incidence  of  the  industrial  system.  As  a  result  we  have 
acquired  a  number  of  things  for  which  we  did  not  ask,  that  may 
well  be  considered  the  costs  of  our  material  progress.  Our  urban 
life  has  its  full  complement  of  slums,  overcrowding,  vice  and 
poverty.  There  is  clearly  evident  a  tendency  toward  a  stratification 
of  society  on  a  pecuniary  basis,  with  a  funded-income  class  at  the 
top  and  a  proletariat  of  alien  blood  at  the  bottom.  There  is  growing 
a  spirit  of  protest  based  upon  a  philosophy  quite  foreign  to  that 
which  underlies  our  cherished  institutions.  Our  vast  pecuniary 
system  is  making  the  lot  of  labor,  and  capital,  too,  for  that  matter, 
extremely  insecure.  Moreover,  we  are  beginning  to  see  that  our 
prosperity  is  imposing  its  costs  upon  the  next  generation,  in  condi- 
tions and  institutions  which  we  did  not  will,  in  problems  which  we 
helped  to  raise  but  cannot  solve,  and  in  depleted  resources  with  which 
to  work  out  its  social  salvation. 

As  we  realize  these  things,  there  grows  up  among  us  a  reaction 
against  the  extreme  individualism  of  the  nineteenth  century.  We 
are  imposing  limitations  upon  what  we  conceive  individual  initiative 
and  energy  to  be  capable  of  accomplishing ;  we  doubt  if  the  ladder 
which  leads  to  the  top  has  its  full  number  of  rungs ;  all  successful 
men  are  no  longer  "self-made."  We  occasionally  even  make  excuses 
for  the  man  who  fails.  We  have  discovered  "environment,"  and 
speak  quite  frequently  of  "exceptional  opportunities,"  "social  con- 
ditions," and  the  "favor  of  fortune."  We  are  beginning  to  associate 
those  things  which  we  do  not  like  with  an  "overdeveloped  individual- 
ism," and  to  see  "grave  dangers"  in  unrestricted  liberty. 

This  change  is  manifesting  itself  in  a  changed  attitude  toward 
our  institutions.  Quite  frequently  we  use  the  word  "privilege"  in 
connection  with  the  activities  of  government.  Seemingly  forgetful 
of  our  former  boasts,  we  are  today  demanding  reforms  which  will 
make  our  government  "democratic."  We  are  not  distrustful  of  the 
fundamental  soundness  of  our  legal  institutions,  such  as  property, 
contract,  equality  before  the  law.  etc.,  but  we  are  beginning  to  sus 
pect  that  they  bear  too  many  signs  of  having  been  forged  to  meet 


xxxvi  INTRODUCTION 

the  needs  of  frontier  and  craft  societies ;  that  they  are  more  con- 
sonant with  the  plow  and  the  spinning-wheel  than  with  the  power- 
loom  and  the  locomotive.  We  are  qualifying  ethical  standards  which 
we  regard  as  valid  with  the  adjective  social.  In  education  the  elective 
system  is  giving  way  to  a  flexible  curriculum  adapted  to  the  newer 
society.  A  spirit  of  group  and  class  welfare  is  expressing  itself  in 
such  voluntary  associations  as  the  trade  and  craft  unions,  and  is 
beginning  to  permeate  legislation.  We  are  beginning  to  trust  the 
state,  and  are  no  longer  affrighted  by  the  cry  of  paternalism.  In 
economics  we  use  the  term  "social  value" ;  we  have  begun  to  insist 
that  economic  theory  is  not  confined  to  value  theory;  and  we  are 
more  clearly  recognizing  that  distribution  of  wealth  and  projects 
of  social  reform  are  concerned  with  institutional  arrangements.  Our 
religious  systems  are  more  and  more  emphasizing  the  note  of 
"social  service." 

With  the  reaction  from  individualism  has  come  a  protest  against 
our  habit  of  considering  the  particular  apart  from  the  general.  We 
are  beginning  to  learn  that  things  in  general  matter;  and  that  the 
reality  of  our  problems  lies  in  their  connection  with  social  life  ip 
its  varied  and  multifarious  aspects.  We  are  realizing  that  specializa- 
tion, to  be  anything  more  than  clerical,  must  have  a  broad  basis. 
We  are  coming  to  see  that  the  whole  is  something  quite  different 
from  the  sum  of  its  parts;  that  society  is  not  a  mere  aggregation 
of  individuals. 

Quite  naturally  enough  the  impatience  that  comes  from  the  newer 
view  of  things  has  enough  of  the  older  thought  in  it  to  place  great 
reliance  in  mechanics.  It  wants  results  and  wants  them  now.  In- 
stinctively it  turns  to  the  state  and  demands  legislation.  But,  in  spite 
of  that,  we  are  surely,  if  slowly,  learning  that  there  are  decided 
limitations  upon  what  can  be  accomplished  by  tinkering.  We  know 
that  laws  must  be  passed,  and  that  there  are  many  things  which 
immediately  they  can  be  made  to  do.  But  we  are  beginning  to  under- 
stand that  in  many  cases  they  produce  their  results,  not  from  their 
direct  enforcement,  but  from  a  series  of  reactions  which  they  start, 
and  these  results  can  only  gradually  appear.  We  are  learning,  too, 
that  there  are  other  and  more  delicate  instruments  of  control,  such 
as  the  educational  system,  codes  of  professional  ethics,  occupational 
associations,  and  even  conventions  and  traditions,  that  we  may  use 
in  the  furtherance  of  our  schemes,  and  that  these  delicate  instru- 
ments will  reach  many  things  too  subtle  and  too  minute  to  be  touched 
by  the  bolder  and  cruder  machinery  of  the  state. 

'  In  view  of  this  it  is  not  surprising  that  we  are  at  last  learning 
that  we  do  not  have  to  be  forever  in  a  hurry.  We  must  pay  for 
what  we  get.    Perfect  societies  are  not  El  Dorados  or  Klondikes  to 


INTRODUCTION  xxxvii 

be  stumbled  upon.  A  Utopia,  even  if  it  can  be  realized,  cannot  be 
juggled  out  of  a  hat  by  a  social  magician.  We  must  through  devel- 
opment gradually  assume  the  social  form  we  desire.  Only  knowl- 
edge is  obtained;  wisdom  is  attained.  Even  our  socialists,  who, 
only  yesterday,  were  promising  us  "a  new  heaven  and  a  new  earth," 
have  learned  that  there  is  a  tomorrow. 

And  withal,  in  our  radicalism,  if  you  choose  to  call  it  such,  we 
are  becoming  more  conservative.  If  we  have  begun  to  ask  imperti- 
nent questions  about  classes,  property,  and  social  arrangements 
generally,  it  is  not  because  we  are  condemning,  but  only  because 
we  are  socially  inquisitive.  We  would  prove  all  things  in  order  that 
we  may  hold  fast  to  that  which  is  good.  Yet  more  clearly  than 
ever  before  we  realize  the  vastness,  complexity,  and  even  the  mys- 
teriousness  of  our  social  system.  We  know  that  we  understand  how 
various  institutions  and  agents  work  very  imperfectly.  We  know 
that  many  that  seem  to  us  to  be  without  responsibility  are  intimately 
associated  with  some  very  important  functions.  We  are  not  quite 
sure  that  we  could  create  agencies  which  would  perform  the  same 
functions  more  efficiently  or  with  less  cost.  These  things  incline 
us  to  caution,  to  take  easy  steps,  to  examine  results  carefully  before 
proceeding,  and  to  use  very  flexible  programs.  But,  if  our  knowl- 
edge is  small,  and  if  the  difficulties  are  great,  the  call  is  for  a  greater 
determination,  a  more  farsighted  vision,  a  more  careful,  comprehen- 
sive, and  patient  study,  and  greater  deliberation  about  ways  and 
means. 

In  view  of  this  particular  crisis  in  our  development  we  must 
consider  our  problems.  We  must  recognize  the  part  which  the 
older  society,  the  older  institutional  system,  and  the  older  individ- 
ualistic thought  have  played  and  are  still  playing.  We  must  as 
clearly  recognize  the  newer  tendencies,  both  in  the  institutional  sys- 
tem and  in  the  newer  attitudes  toward  our  economic  arrangements. 
Many  of  these  problems  we  shall  find  to  be  old.  When  the  universe 
was  contrived  many  antagonisms  were  left.  The  enigmas  of  rich 
and  poor,  of  waste  and  poverty,  of  privilege  and  oppression,  have 
been  presented  to  us  by  the  many  ages  which  they  have  baffled.  As 
likely  as  not  we  shall  leave  them  as  part  of  our  heritage  to  succeeding 
generations.  Some  of  them  appeared  with  the  machine-system,  and 
have  become  more  and  more  conspicuous  as  the  newer  technique 
conquered  the  continent.  Of  these  are  the  problems  connected  with 
huge  aggregates  of  wealth,  such  as  railroads  and  capitalistic  monop- 
olies. Some  come  from  incompatibilities  between  advancing  and 
stationary  aspects  of  social  development.  The  legal  problem  in- 
volved in  employer's  liability  is  typical  of  this  class.     Some  are 


xxxvm  INTRODUCTION 

manifestations  of  a  later  stage  of  the  machine-culture.  Of  this  kind 
are  the  problem?  cerilering  in  institutional  system  which  trade  union- 
ism tlireatens  to  create.  Of  some  of  these  problems  we  have  long 
been  conscious.  The  change  in  our  attitude  toward  our  social 
system  has  brought  others  within  our  field  of  vision.  Who  knows 
but  there  we  many  others  which  are  with  us,  but  which  we  cannot 
see  because  of  intellectual  blindness?  But,  old  or  new,  familiar  or 
unfamiliar,  evident  or  invisible,  all  of  these  problems  are  part  and 
parcel  of  Modern  Industrialism.  They  are  all  involved  in  the  gigan- 
tic pecuniary  system  which  knits  together  our  social  life.  The  oldest 
of  them  is  with  us  a  problem  very  different  in  form  from  its  er.riier 
prototype  which  confronted  our  ancestors.  They  are  all  aspectf-  of 
the  larger  question.  Can  our  society  determine  the  direction  of  its 
own  development? 

To  find  an  answer  to  such  a  question  would  involve  a  quest  into 
all  of  life.  Here  we  must  modestly  limit  ourselves  to  a  general 
survey  of  the  current  aspects  of  Modern  Industrialism.  Our  pro- 
cedure makes  it  imperative,  first  of  all,  clearly  to  realize  that  our 
system  is  developing  and  that  in  this  development  the  various  as- 
pects of  social  life  mutually  influence  each  other.  The  Industrial 
Revolution,  if  broadly  enough  interpreted,  can  then  be  made  to 
show  us  the  peculiarities  and  problems  of  the  stage  in  development 
which  we  have  now  reached.  We  can  then  quite  definitely  turn  our 
attention  to  the  problem  of  the  control  of  the  development  of  indus- 
trial society,  by  inquiring  about  our  knowledge  of  the  "forces"  which 
cause  development,  the  means  of  control  we  possess,  and  the  theory 
of  control  of  which  we  should  make  use.  The  partial  control  which 
we  are  to  exercise  over  development  is  to  come  from  our  handling 
of  particular  problems.  Accordingly  we  must  next  consider  a 
number  of  somewhat  different  problems,  always  with  a  clear  idea 
of  their  relations  to  each  other  and  to  the  developing  whole.  The 
few  which  will  be  treated  are  typical  of  the  many  which  confront 
us.  These  fall  into  two  somewhat  distinct  groups,  the  first  centering 
about  the  problem  of  the  organization  of  industrial  society,  the 
second  concerning  themselves  with  the  various  industrial  classes 
which  make  up  the  population. 

The  primary  question  in  the  first  group  is  that  of  the  mechanical 
perfection  with  which  price  organizes  society.  The  problem  is  com- 
plicated by  the  rhythm  of  the  business  cycle.  Associated  with  it  is 
the  more  difficult  question  of  whether  such  an  organization,  quite 
apart  from  its  mechanical  perfection,  can  be  made  to  serve  the  ends 
we  would  have  it  serve.  A  parallel  problem  is  that  of  the  extent 
to  which  the  economic  entity  should  be  made  to  correspond  to  the 


INTRODUCTION  xxxix 

political  entity;  this  appears  most  clearly  in  the  issues  which  center 
in  the  tariff.  Internal  problems  of  organization,  of  tremendous 
social  consequence,  particularly  in  the  tendencies  implicit  in  their 
gradual  solution,  are  found  in  the  regulation  of  railroads  and  capi- 
talistic monopolies. 

Of  the  second  group  of  problems,  perhaps  the  most  compre- 
hensive is  that  of  the  control  of  population,  quantitatively  and 
qualitatively,  through  immigration  and  through  births.  Its  proper 
solution  should  do  much  to  lessen  the  intensity  of  the  other  social 
problems.  A  second,  somewhat  less  baffling,  but  still  extremely 
difficult,  is  that  of  eliminating  economic  insecurity  from  the  lot  of 
the  wage- worker.  A  third,  perhaps  most  evident  in  the  program  of 
trade  unionism,  is  concerned  with  the  rise  of  group-  and  class- 
consciousness,  the  spirit  of  group  solidarity  implicit  in  so  much  of 
the  recent  social  legislation,  and  the  clash  between  the  institutional 
systems  of  individualism  and  of  collectivism.  The  progress  implicit 
in  a  solution  of  these  latter  problems  calls  for  an  increase  of  state 
activity  on  behalf  of  the  individual,  and  makes  imperative  the 
problem  of  finding  new  sources  of  revenue.  And  finally,  whether 
ominous  or  prophetic,  we  need  to  note  a  rising  spirit  of  protest 
which  demands  a  radical  reconstruction  of  our  whole  scheme  of 
social  life  and  values. 

Such  a  quest  promises  no  guaranteed  solutions  of  perplexing 
problems.  It  will  not  yield  magical  formulas  for  disposing  of  the 
enigmas  which  have  perplexed  the  generations.  It  will  give  no 
assurance  .that  succeeding  ages  will  have  no  baffling  and  bewildering 
questions  to  disturb  their  peaceful  repose.  It  will  furnish  no  open 
sesame  to  a  social  Utopia.  On  the  contrary,  quite  likely  it  will 
show  that  the  perfect  society  is  far  in  the  future.  It  may  even 
convey  the  dismal  lesson  that  our  limited  resources  will  ever  prevent 
the  emancipation  of  the  sons  of  Adam  from  bondage  to  social  econ- 
omy. But  the  search  should  yield  some  -positive  results.  It  should 
put  us  in  position  to  essay  further  quests  into  particular  aspects  of 
our  industrial  system.  It  should  prevent  our  dissipating  our  energies 
in  an  attempt  to  realize  the  unattainable  by  impossible  methods.  It 
should  save  us  from  thraldom  to  social  and  economic  alchemy.  Even 
more  important,  it  should  show  us  that  our  problems  are  in  process 
of  gradual  solution ;  that  they  have  long-time  aspects  much  more 
important  than  the  immediate  issues  which  we  see ;  and  that  vision, 
as  well  as  emotion,  is  called  for  in  dealing  with  them.  Here  and 
there,  too,  we  should  pick  up  bits  which  together  we  can  weave 
into  a  partial  and  tentative  program.  If  our  quest  makes  this  be- 
ginning, it  will  have  served  its  purpose. 


THE  ANTECEDENTS  OF  MODERN  INDUSTRIALISM 

The  perplexing  economic  questions  of  the  day,  as  we  shall  learn,  are  not 
simple  little  aflfairs  which  can  be  separated  from  the  "prevailing  system"  and 
analyzed  and  "solved"  in  isolation.  They  are  so  closely  related  that  a  change 
in  one  affects  many  others.  They  are  iAseparable  parts  of  that  complex  of 
institutions,  traditions,  conventions,  and  activities  to  which  we  attach  the 
name  Modern  Industrialism,  and  they  are  intimately  associated  with  the  multi- 
farious legal,  political,  economic,  ethical,  and  social  aspects  of  this  larger 
system.  It  is,  therefore,  in  view  of  this  larger  whole  that  our  problems  are 
w^hat  they  are. 

There  is  nothing  singular  in  our  possession  of  troublesome  problems. 
They  are  the  common  heritage  of  the  ages.  When  the  universe  was  con- 
trived enough  of  antagonism  was  left  in  it  to  keep  some  problems  constantly 
before  us.  The  sweep  of  change  constantly  adds  new  recruits  to  this  array. 
It  may  be  that  somehow  or  other  problems  get  "solved"  it  may  be  that  they 
merely  become  obsolescent  and,  like  old  machinery,  are  "scrapped" ;  it  may  be 
that  they  are  forced  to  surrender  their  places  to  newcomers ;  or  it  may  be  that 
they  tend  to  lose  their  identity  in  that  of  other  problems.  Perhaps  all  of  these 
things  happen;  but,  however  that  may  be,  old  problems  tend  to  disappear. 
But,  strangely  or  naturally  enough,  as  you  may  choose  to  view  it,  we  never 
have  an  end  of  problems.  As  old  ones  depart,  new  ones,  without  awaiting 
welcome,  come  forward.  Some  of  these  newcomers  are  old  problems  appear- 
ing in  new  forms ;  for,  after  all,  there  is  much  that  is  fundamental  in  life  and 
institutions.  The  questions  of  efficiency,  of  poverty,  of  social  classes,  and  of 
work  and  reward  are  as  old  as  society.  'But  some  problems  are  new;  and 
even  the  old  ones  are  for  us  quite  distinct'  from  their  predecessors — distinct 
in  the  economic  status  of  the  individuals  aS>^f.ti.<\,  distinct  in  the  scheme  of 
values  surrounding  them,  and  distindt  ih  the  treatment  for  which  they  call. 

All  of  these  problems,  old  and  new  alike,,  are  aspects  of  the  development 
of  society;  they  emerge  or  assume  new  foipis  as  tha  social  complex  de- 
velops. They  give  evidence  of  a  lack  of  compatibility  somewhere  between 
the  many  and  various  aspects  of  social  life — be"iWeefi  institution  and  institu- 
tion, between  activity  and  custom,  between  practice 'and-  ideal.  Their  con- 
scious— or  unconscious — solution  is  nothing  else  than  3  restoration  of  har- 
mony between  antagonistic  elements.  Since,  too,  growth  is  not  uniform,  their 
passing  leads  usually  to  the  rise  of  new  problems.  Their  "solution"  has  the 
further  effect  of  contributing  to  the  development  of  society;  the  process  is 
advanced. 

If,  then,  we  are  properly  to  understand  current  problems,  we  must  first 
of  all  get  some  impression  of  our  present  "system."  It  is  so  much  a  part  of 
our  very  lives  and  activities  that  we  find  it  hard  to  think  of  it  as  "a"  system, 
and  are  prone  to  view  it  as  a  part  of  the  immutable  universe  itself.  And, 
when  active  intellectual  effort  does  point  it  out  as  only  one  of  many  systems, 
we  often  fail  to  see  that  it  is  in  process  of  constant  change.  Qearly  to  under- 
stand— rather  than  to  know — that  it  is  only  one  among  many  possible  systems 
and  to  see  that  it  is  persistently  changing,  even  as  we  view  it,  let  us  try  to  catch  a 
glimpse  of  it  in  process  of  development.  In  such  a  task  we  need  neither  gen- 
eral statements  of  the  nature  of  its  growth  nor  an  intensive  study  of  the 
"facts."  Our  concern  is  not  with  the  past,  but  with  the  present;  our  interest 
is  not  in  "events,"  but  in  the  process.  We  want  to  see  a  system  very  unlike 
ours  slowly  giving  way  to  the  one  with  which  we  are  familiar. 


2  CURRENT  ECONOMIC  PROBLEMS 

To  that  end  we  begin,  in  the  readings  below,  with  a  consideration  of  the 
peculiar  characteristics  of  the  social  "order"  with  which  we  are  familiar. 
Among  these  its  unity  and  the  interdependence  of  its  aspects  are  emphasized. 
For  example,  the  influence  of  the  ideals  of  the  mediaeval  church  upon  indus- 
trial development  suggests  many  phases  of  this  interdependence.  The  selec- 
tions which  follow  on  manorial  and  gild  economy  furnish  material  for  a  com- 
parison of  the  spirit,  values,  activities,  and  institutions  of  our  present  system 
with  others  quite  unlike  it.  Additional  material  for  the  same  purpose  is 
available  in  the  selections  devoted  to  mediaeval  commercial  development,  pol- 
icy, and  theory.  The  readings  also  show  that  there  is  much  in  common 
between  the  social  and  industrial  life  of  mediaevalism  and  the  nineteenth 
century.  The  theory  of  the  stewardship  of  wealth  is  to  be  found  in  modern 
sociology  as  well  as  in  mediaeval  theology;  Italy  in  the  fourteenth  century 
faced  many  urban  problems  which  are  quite  modern;  the  mediaeval  artisan 
was  familiar  with  the  art  of  "soldiering" ;  few  moderns  could  teach  many  new 
tricks  of  trade  to  the  mediaeval  craftsman;  and  there  is  much  of  modern 
plausibility  in  the  mercantilist  confusion  of  personal  gain  and  social  good. 

Quite  as  important  is  the  evidence  furnished  by  these  readings  of  a  move- 
ment toward  the  "modern"  system.  The  very  ideals  of  an  unworldly  church 
were  leading  toward  a  material  and  humanistic  culture;  priestly  inhibitions 
of  usury,  reinforced  by  superstitious  stories  of  the  torment  in  store  for  the 
money-lender,  were  increasingly  impotent  to  remove  the  lure  of  jingling 
guineas  promised  by  commercial  ventures ;  the  manor,  a  miniature  world  in 
itself,  was  losing  its  identity,  and  the  gild  was  breaking  down  in  the  face  of  a 
wider  and  wider  organization  of  industry;  the  commercial  note  of  pecuniary 
profit  was  becoming  more  and  more  dominant;  and  the  larger  society  was 
substituting  the  magic  of  price  for  personal  relation  as  the  means  of  organiza- 
tion. Developing  society,  at  first  unlike  ours,  was  coming  nearer  and  nearer 
to  the  system  we  know.  Only  the  single  movement  of  the  Industrial  Revolu- 
tion was  necessary  to  make  it  assume  the  form  with  which  we  are  so  familiar. 

A.     IDEALS  UNDERLyiJJG  INDUSTRIAL  DEVELOP- 

\^     MENT 

1.     The  Essential  Ch^?'ax:teristics  of  Modern  Industrialism 

An  understandings /of  the  nature  of  Modern  Industrialism  is  es- 
sential to  an  inteliig'eht  grasp  of  its  problems  and  a  rational  attempt 
at  their  solution.'  Such  an  understanding  comes  most  easily  from 
a  study  of  the  process  by  which  modern  industrial  culture  has  come 
to  be  what  it  is.  Like  all  historical  work  of  value,  such  a  study 
must  have  a  definite  goal  before  it.  It  must  aim  to  reveal  those 
institutions,  those  intellectual  and  emotional  forces,  which  have 
given  character  to  the  prevailing  system,  which  are  responsible  for 
its  problems,  and  which  condition  their  solution.  For  that  reason 
it  is  best  to  begin  the  historical  account  of  modern  culture  with  a 
brief  statement  of  its  essential  characteristics. 

Modern  Industrialism  is  a  peculiar  culture ;  it  is  a  thing  apart. 
Nothing  like  it  has  previously  existed.  The  Chinese  system  of  the 
Far  East,  clinging  tenaciously  to  the  past,  has  developed  a  system 
which  is  a  sprawling,  conglomerate  fact.    The  nearer  Orient,  India, 


ANTECEDENTS  OF  INDUSTRIALISM  3 

tor  instance,  has  repressed  sel/-assertion,  has  subordinated  the  ma- 
terial side  of  social  life,  and  has  produced,  as  if  from  a  mould,  a 
rigidly  hard  social  system.  Even  the  European  states  of  the  ancient 
world  failed  to  organize  themselves  as  industrial  and  social  wholes. 
For  example,  the  Greeks  showed  nowhere  their  inability  at  organ- 
ization more  clearly  than  in  failing  to  associate  the  individual's  gain 
from  his  labor  with  a  service  to  a  larger  group.  The  unity  achieved 
by  Rome  was  a  mechanical,  not  an  organic,  unity.  Both  alike 
despised  manual  labor,  and,  for  that  reason,  failed  to  lay  an  ade- 
quate foundation  for  a  permanent  industrial  system.  How  distinct 
is  Modem  Industrialism  is  revealed  by  a  brief  citation  of  some  of 
its  peculiar  aspects.  The  list  mentioned  below  is  not  intended  to  be 
all  comprehensive  and  the  characteristics  mutually  exclusive.  It  is 
merely  a  statement  of  some  of  the  charactertistics  of  our  system 
which  the  student  of  current  economic  problems  should  keep  clearly 
in  mind. 

First,  America  and  Western  Europe,  Christendom,  in  fact,  con- 
stitutes a  single  industrial  society.  Differences  in  race,  language, 
government,  and  religious  creed  are  almost  negligible  in  comparison 
with  what  the  Western  World  has  in  common.  Even  where  these 
differences  exist,  the  basic  elements  of  these  institutions  are  much 
the  same.  As  ideal  or  actuality  universality  has  long  been  a  char- 
acteristic of  the  system.  The  Roman  Empire  was  universal.  When 
the  earthly  society  disintegrated,  it  remained  in  idea  as  a  universal, 
heavenly  kingdom.  The  Catholic  Church,  patterned  after  this 
heavenly  society,  kept  the  ideal  alive  when  more  substantial  unity 
was  impossible.  Towards  the  realization  of  universality  society 
tended  to  be  organized  in  the  Catholic  Church.  And,  at  last,  when 
the  spell  of  Catholicism  was  broken,  political,  social,  and  particularly 
industrial  and  commercial  institutions  had  tied  the  Western  World 
together  into  a  single  industrial  culture. 

Second,  Western  Civilization  is  an  extremely  fluid  culture.  Few 
legal  and  authoritative  restrictions  are  placed  upon  one's  right  to 
choose  his  own  occupation.  There  are  no  hard  and  fast  class  lines. 
In  the  thought  of  the  people  there  are  practically  none.  Freedom 
of  movement  from  place  to  place  is  allowed.  In  all  of  life's  relations 
there  is  such  fluidity  that  the  adaptation  of  population,  natural  re- 
sources, and  acquired  capital  to  each  other  and  to  changed  condi- 
tions is  not  only  rapid,  but  is  constantly  in  process.  Briefly,  Chris- 
tian teaching,  the  presence  of  the  opportunities  afforded  by  the 
American  continent,  and  the  Industrial  Revolution,  have  all  empha- 
sized this  characteristic. 


4  CURRENT  ECONOMIC  PROBLEMS 

Third,  ours  is  a  humanistic  and  a  material  culture.  A  contempt 
for  human  life  and  the  material  means  to  well-being,  a  denial  "of  the 
world,  the  flesh,  and  the  devil,"  a  desire  to  escape  from  "the  vain 
pomp  and  glory  of  the  world,"  has  never  been  an  essential  part  of 
the  attitude  of  Western  peoples  towards  life.  Even  monasticism 
came  to  be  based  upon  the  theory  that  life  in  this  world  is  worth 
while.  This  institution  became  a  means  through  which  other-world 
obligations,  placed  upon  man  by  the  peculiar  conditions  accompany- 
ing the  disintegration  of  Roman  society,  could  be  vicariously  satis- 
fied by  a  small  part  of  society,  and  the  greater  part  could  be  released 
to  live  the  better  life  of  the  world.  Men  who  fervently  sing,  "For 
such  a  worm  as  I,"  ^d  "This  world's  a  wilderness  of  woe.  This 
world  is  not  my  home,"  do  not  discover  new  continents,  invent  print- 
ing and  the  steam-engine,  and  erect  world-wide  industrial  systems. 
Unlike  Greeks  and  Romans,  with  us  the  idea  of  the  worthwhileness 
of  life  has  carried  with  it  the  idea  of  the  dignity  of  manual  toil, 
which  has  furnished  an  adequate  foundation  upon  which  to  build 
an  industrial  culture. 

Fourth,  our  culture  is  in  a  very  high  degree  a  pecuniary  culture. 
More  than  by  any  one  thing  our  economic  conduct  is  actuated  by 
the  desire  for  pecuniary  profit.  We  go  into  those  occupations  prom- 
ising the  highest  pecuniary  returns.  Our  capital  breaks  over  na- 
tional barriers  when  the  rate  of  interest  abroad  mounts  higher. 
Even  back  in  the  Middle  Ages,  penance,  a  sacrament  of  the  church, 
was  put  on  a  pecuniary  basis.  Escape  from  the  consequences  of 
certain  actions  was  allowed  to  those  who  had  accumulated  wealth. 
Thus  the  accumulation  of  wealth  and  the  stratification  of  society 
upon  a  pecuniary  basis  was  encouraged.  Today  in  the  court,  in 
the  church,  in  the  press,  in  social  circles,  the  man  of  wealth  is 
treated  with  greater  consideration  because  of  his  wealth.  The 
three  characteristics  mentioned  above,  fluidity,  humanism,  and  the 
dominance  of  the-  pecuniary  motive  have  made  our  culture  a  highly 
industrial  culture,  for  it  is  in  industry  that  these  motives  find  their 
fullest  expression. 

Fifth,  our  culture  places  the  value  of  human  actions  and  insti- 
tutions in  some  end  or  institution  over  and  beyond  themselves.  The 
justification  of  individual  activity  is  not  to  be  found  in  personal 
good.  The  actions  of  individuals  are  found  worthy  of  praise  only 
because  of  a  larger  and  a  greater  "society,"  towards  which  they  are 
as  means  to  an  end.  Laissez-faire  is  defended  not  as  a  means  to 
self-aggrandizement,  but  as  a  theory  of  social  welfare.  "Big  busi- 
ness" talks  in  terms  of  "pay  envelopes,"  "full  dinner  pails,"  and 
"general  prosperity."     But  the  end  from  which  the  value  comes  is 


ANTECEDENTS  OF  INDUSTRIAUSM  $ 

even  less  immediate  than  present  society.  The  justification  of  the 
present  is  in  the  future.  Back  in  the  Middle  Ages  one's  conduct 
was  regulated  by  one's  desire  for  his  "soul's  salvation."  As  men 
little  by  little  ceased  to  have  souls,  and  "life's  fullness"  came  more 
and  more  to  be  recognized  as  life's  end,  the  emphasis  formerly 
attached  to  the  other  world  associated  itself  with  an  ideal  society 
which  was  striving  for  realization  in  the  church.  Even  today,  ob- 
scured as  it  may  seem,  an  ideal  future  society  is  the  potent  force 
in  evaluating  conduct,  individual  and  social.  How  potent  is  this 
idea  of  the  future  a  few  statements  will  show.  We  use  "round- 
about" processes  of  production.  In  legislation  we  seek  to  conserve 
the  interests  of  capital,  future  goods,  rather  than  give  our  atten- 
tion to  conserving  imme'diate  income.  We  speak  in  terms  of  pro- 
gress and  evolution.  We  condemn,  as  never  before,  industry  and 
politics  because  of  its  "shortsightedness."  We  give  serious  consid- 
eration to  such  a  radical  program  of  industrial  reform  as  socialism. 
The  value  of  the  present  thing  is  in  large  part  a  value  derived  from 
a  future  ideal.  Thus  a  spirit  of  idealism,  seeing  a  realization  of  its 
purposes  in  a  less  immediate  society  is  a  very  vital  factor  in  deter- 
mining the  course  of  industrial  development. 

These  several  characteristics,  material  and  emotional  as  all  of 
them  are,  are  vital,  because  they  uftderlie  our  culture,  condition  our 
growth,  and  must  be  clearly  recognized  in  any  program  of  political, 
social,  and  industrial  reform. 

2.     Christian  Teaching  and  Industrial  Development^ 

BY  WILLIAM  CUNNINGHAM 

The  debt  of  Christendom  to  ancient  Rome  is  very  deep,  and  cen- 
turies of  gradual  growth  were  required  before  mediaeval  could  vie 
with  ancient  civilization  in  the  external  signs  of  material  prosperity ; 
but  it  would  be  a  mistake  to  suppose  that  the  new  society  was  a 
mere  reproduction  of  the  old;  it  differed  in  every  single  feature. 
The  contrast  between  the  Roman  Empire  and  mediaeval  Christendom 
was  a  difference  not  in  skill  or  in  organization  merely,  but  in  the 
whole  spirit  of  the  civilization.  Though  this  element  is  very  im- 
portant it  is  so  subtle  that  analysis  does  not  readily  detect  it;  but 
the  best  that  the  Greeks  had  attained  may  be  taken  as  the  starting 
point  from  which  the  new  advance  began.  The  Greek  regarded 
material  wealth  as  a  means  to  an  end,  and  as  offering  opportunities 

'Adapted    from    An   Essay    on    Western    Civilisation    in    Its   Economic 
Aspects,  II,  6-IO,  35-36  (1900). 


6  CURRENT  ECONOMIC  PROBLEMS 

for  the  cultured  life  of  free  men  in  a  City-State.  A  high  respect 
for  the  dignity  of  man  and  the  possibilities  of  human  nature  as 
essentially  political,  dominated  his  attitude  toward  the  material 
world,   and   the  pursuit  of   agriculture,   commerce,   and   industry. 

Christian  teaching  carried  this  Greek  conception  of  the  supreme 
worth  of  human  life  much  farther  by  presenting  it  in  its  super- 
natural aspects.  The  doctrine  of  the  Incarnation  asserted  that  the 
human  body  had  afforded  an  adequate  medium  for  the  manifesta- 
tion of  the  divine  nature ;  the  doctrine  of  the  Resurrection  held  out 
a  sure  and  certain  hope  of  personal  immortality  for  the  human  soul. 
Christianity  thus  involved  a  very  high  view  of  human  life.  The 
supreme  dignity  of  man  as  man  was  set  forth  by  Christian  teaching 
and  the  conscious  and  habitual  subordination  of  material  things  to 
human  ideals  and  aspirations  was  carried  further  than  it  had  ever 
been  before. 

One  of  the  gravest  defects  of  the  Roman  Empire  lay  in  the  fact 
that  its  system  left  little  scope  for  individual  ends,  and  tended  to 
check  the  energy  of  capitalists  and  laborers  alike.  But  Christian 
teaching  opened  up  an  unending  prospect  before  the  individual  per- 
sonally, and  encouraged  him  to  diligence  and  activity  by  an  eternal 
hope.  Nor  did  such  a  concentration  of  thought  on  a  life  beyond 
the  grave  divert  attention  from  secular  duties.  Christianity  brought 
out  new  motives  for  taking  them  earnestly.  The  Christian  monk 
was  deprived  of  civil  rights,  and  was  absolutely  at  the  beck  and  call 
of  his  superior.  But  there  was  no  degradation  in  monastic  obedi- 
ence, since  it  was  voluntarily  undertaken  by  a  freeman  as  a  disci- 
pline through  which  he  might  attain  the  noblest  destiny. 

In  fact  the  chief  claim  of  the  monks  to  our  gratitude  lies  in  this 
that  they  helped  to  diffuse  a  better  appreciation  of  the  duty  and 
dignity  of  labor.  By  the  "religious"  manual  labor  was  accepted  as 
a  discipline  which  helped  them  to  walk  in  the  way  of  eternal  salva- 
tion; it  was  not  undertaken  for  the  sake  of  reward,  since  the  pro- 
ceeds were  to  go  for  the  use  of  the  community  or  the  service  of  the 
poor;  it  was  not  viewed  as  drudgery  that  had  to  be  gone  through 
from  dread  of  punishment.  There  was  neither  greed  of  gain,  nor 
the  reluctant  service  of  the  slave,  but  simply  a  sense  of  a  duty  to  be 
done  diligently  unto  the  Lord. 

The  acceptance  of  this  higher  view  of  the  dignity  of  human  life 
as  immortal  was  followed  by  a  fuller  recognition  of  personal  respon- 
sibility. Christianity  introduced  a  new  sense  of  duty  in  regard  to 
the  manner  of  using  material  things.  The  wealth  of  the  old  world 
had  been  wasted  in  the  perpetuation  of  regal  pride  and  the  gratifi- 
cation of  personal  luxury.    Provinces  had  been  despoiled  and  ruined 


ANTECEDENTS  OF  INDUSTRIAUSM  7 

and  their  resources  exhausted  rather  than  developed.  Christianity 
protested  against  any  employment  of  wealth  that  disregarded  the 
glory  of  God  and  the  good  of  man. 

This  then  was  the  characteristic  difference  between  the  ancient 
civilization  and  the  new  order  w^hich  was  beginning  to  flourish  in  the 
twelfth  century.  These  principles,  even  though  imperfectly  realized, 
help  us  to  understand  the  character  of  modem  civilization.  A  ca- 
pricious and  arbitrary  ruler  had  been  hailed  with  divine  honors  in 
ancient  times;  in  the  Middle  Ages  the  supremacy  of  Eternal  and 
Supernatural  Authority  over  all  human  beings  was  maintained.  The 
Christian  doctrine  of  price,  the  Christian  condemnation  of  gain  at 
the  expense  of  another  man,  affected  all  the  mediaeval  organizations 
of  municipal  life  and  regulation  of  intermunicipal  commerce,  and 
introduced  marked  contrasts  to  the  conditions  of  business  in  ancient 
cities.  The  Christian  appreciation  of  the  duty  of  work  rendered 
the  lot  of  the  mediaeval  villein  a  very  different  thing  from  that  of  the 
slave  in  the  ancient  empire.  The  responsibility  of  proprietors  was 
so  far  insisted  on  as  to  place  substantial  checks  on  tyranny  of  ever>' 
kind.  For  these  principles  were  not  mere  pious  opinions,  but  effec- 
tive maxims  in  practical  life. 

B.     MANORIAL  AND  GILD  ECONOMY 
3.     The  Manor,  a  Self-Sufficient  Economy^ 

BY  WII,LIAM  J.  ASHLEY 

Till  nearly  the  end  of  the  fourteenth  century,  England  was  a 
purely  agricultural  country.  Such  manufactures  as  it  possessed 
were  entirely  for  consumption  within  the  land;  and  for  goods  of 
finer  qualities  it  was  dependent  upon  importation  from  abroad. 

In  the  eleventh  century,  and  long  afterwards,  the  whole  coun- 
try, outside  the  larger  towns,  was  divided  into  manors,  in  each  of 
which  one  person,  called  the  lord,  possessed  certain  important  and 
valuable  rights  over  all  the  other  inhabitants.  Let  us  picture  to 
ourselves  an  eleventh-century  manor  in  Middle  or  Southern  Eng- 
land. There  was  a  village  street,  and  along  each  side  of  it  the 
houses  of  the  cultivators  of  the  soil,  with  little  yards  around  them : 
as  yet  there  were  no  scattered  farmhouses,  such  as  were  to  appear 
later.  Stretching  away  from  the  village  w^as  the  arable  land,  divided 
usually  into  three  great  fields,  sown,  one  with  wheat,  one  with  oats 
or  beans,  while  one  was  left  fallow.     The  fields  were  sub-divided 

'Adapted  from  An  Introduction  to  English  Economic  History  and  Theory, 
I,  5-49   (1894). 


8  CURRENT  ECONOMIC  PROBLEMS 

into  "furlongs;"  and  each  furlong  into  acre  or  half-acre  strips,  sep- 
arated, not  by  hedges,  but  by  "balks"  or  unploughed  turf;  and  these 
strips  were  distributed  among  the  cultivators  in  such  a  way  that 
each  man's  holding  was  made  up  of  strips  scattered  up  and  down 
the  three  fields,  and  no  man  held  two  adjoining  pieces.  Each  holder 
was  obliged  to  cultivate  his  strips  in  accordance  with  the  rotation 
of  crops  observed  by  his  neighbors.  There  were  also  meadows, 
enclosed  for  hay-harvest,  and  divided  into  portions  by  lot,  or  rota- 
tion, or  custom,  and  after  harvest  thrown  open  again  for  the  cattle 
to  pasture  upon.  In  most  cases  there  was  also  some  permanent 
pasture  or  wood,  into  which  the  cattle  were  turned,  either  "with- 
out stint,"  or  in  numbers  proportioned  to  the  extent  of  each  man's 
holding. 

The  land  was  regarded  as  the  property,  not  of  the  cultivators, 
but  of  a  lord.  It  was  divided  into  that  part  cultivated  for  the  imme- 
diate benefit  of  the  lord,  the  demesne  or  inland,  and  that  held  of 
him  by  tenants,  the  land  in  villenagc,  the  latter  being  usually  about 
two-thirds  of  the  whole.  The  demesne  consisted  partly  of  separate 
closes,  partly  of  acres  scattered  among  those  of  the  tenants  in  the 
common  fields.  Of  the  land  held  in  villenage,  the  greater  part  was 
held  in  whole  or  half  virgates.  The  virgate  was  a  holding  made  up 
of  scattered  acre  or  half-acre  strips  in  the  three  fields,  with  propor- 
tionate rights  to  meadow  and  pasture ;  and  its  extent,  varying  from 
sixteen  to  forty-eight  acres,  was  usually  thirty  acres.  The  holders 
of  such  virgates  formed  an  estate  socially  equal  among  themselves, 
and  all  of  them  were  under  the  same  obligations  of  service  to  the 
lord. 

The  principal  services  which  the  lord  exacted  of  the  villein  were, 
first,  a  man's  labor  for  two  or  three  days  a  week  throughout  the 
year,  known  as  week  work,  or  daily  works,  and  second,  additional 
labor  for  a  few  days  at  spring  and  autumn  ploughing  and  at  har- 
vest. On  such  occasions  the  lord  demanded  the  labor  of  the  whole 
family,  with  the  exception  of  the  housewife.  Besides  these,  there 
were  usually  small  quarterly  payments  to  be  made  in  money,  and 
miscellaneous  dues  in  kind,  so  many  hens  and  eggs,  and  so  many 
bushels  of  oats  at  diflPerent  seasons ;  as  well  as  miscellaneous  ser- 
vices, of  which  the  most  important  is  carting.  During  the  boondays 
it  was  usual  for  the  lord  to  feed  the  laborers. 

The  fundamental  characteristic  of  the  manorial  group,  regarded 
from  the  economic  point  of  view,  was  its  self  sufficiency,  its  social 
independence.  The  same  families  tilled  the  village  fields  from  father 
to  son.  Each  manor  had  its  own  law  courts  for  the  maintenance  of 
order.     Then  as  now,  every  village  had  its  own  church ;  with  this 


ANTECEDENTS  OF  INDUSTRIALISM  9 

advantage  or  disadvantage,  that  the  priest  did  not  belong  to  a 
different  social  class  from  his  parishioners.  The  village  included 
men  who  carried  on  all  the  occupations  and  crafts  necessary  for 
ever)'-day  life.  There  was  always  a  water  or  wind-mill  which  the 
tenants  were  bound  to  use,  payipg  dues  which  formed  a  considerable 
part  of  the  lord's  income.  Many  villages  had  their  own  blacksmith 
and  carpenter,  probably  holding  land  on  condition  of  repairing  the 
ploughs  of  the  demesne  and  the  villagers. 

Thus  the  inhabitants  of  an  average  English  viirage  went  on, 
year  in,  year  out,  with  the  same  customary  methods  of  cultivation, 
living  on  what  they  produced,  and  scarcely  coming  in  contact  with 
the  outside  world.  The  very  existence  of  towns,  indeed,  implied 
that  the  purely  agricultural  districts  produced  more  than  was  re- 
quired for  their  awn  consumption ;  and  com  and  cattle  were  regu- 
larly sent,  even  to  distant  markets.  But  the  other  dealings  of  the 
villages  with  the  outside  world  were  few.  First,  there  was  the  pur- 
chase of  salt,  an  absolute  necessity  in  the  mediaeval  world,  where 
people  lived  on  salted  meat  for  five  months  in  the  year.  Second, 
iron  was  continually  needed  for  the  ploughs  and  other  farm  imple- 
ments. Third,  when  a  fresh  disease,  the  scab,  appeared  among  the 
sheep,  tar  became  of  great  importance  as  a  remedy.  Perhaps  the 
only  other  recurring  need,  which  the  village  could  not  itself  supply, 
was  that  of  millstones. 

Such  were  the  chief  characteristics  of  the  manorial  group  as  a 
whole,  self-sufficiency  and  corporate  unity.  Now  let  us  look  at  the 
position  of  the  individual  members  in  the  group.  Some  had  risen 
to  the  position  of  free  tenants,  but  the  great  majority  had  continued 
to  hold  by  servile  tenure.  Of  the  position  of  this  great  majority 
the  characteristic  was  permanence,  v/ith  its  disadvantages  and  also 
with  its  advantages. 

It  is  instructive  to  compare  the  village  as  we  have  seen  it  with 
the  village  of  today.  In  one  respect  there  might  seem  to  be  a  close 
resemblance.  Then,  as  usually  now,  the  village  was  made  up  of  one 
street,  with  a  row  of  houses  on  either  side.  But  the  inhabitants  of 
the  village  street  now  are  the  laborers  and  artisans  with  one  or 
more  small  shop-keepers.  The  farmers  live  in  separate  homesteads 
among  the  fields  they  rent,  and  not  in  the  village  street.  Then  all 
the  cultivators  of  the  soil  lived  side  by  side.  Second,  notice  the 
difference  as  to  the  agricultural  operations  themselves.  Now  each 
farmer  follows  his  own  judgment  in  what  he  does.  But  the  peas- 
ant-farmer of  the  period  we  have  been  considering  was  bound  to 
take  his  share  in  a  common-system  of  cultivation,  in  which  the  time 
at  which  evera^'thing  should  be  done  and  the  way  in  which  ever>thing 


lO  CURRENT  ECONOMIC  PROBLEMS 

should  be  done  was  regulated  by  custom.  A  further  difference  is 
seen  in  the  relations  of  lord  and  tenant  as  to  the  cultivation.  Now- 
adays either  the  landlord  does  not  himself  farm  any  land  in  the 
parish,  or  his  management  of  it  is  independent  of  the  cultivation  of 
any  other  land  by  tenants.  But  then  almost  all  the  labor  on  the 
demesne  was  furnished  by  the  villein  tenants,  who  contributed 
ploughs,  oxen,  and  men.  Compare  finally  the  classes  in  the  manor, 
with  those  in  the  village  today.  In  a  modern  parish  there  will 
usually  be  a  squire,  some  three  or  four  farmers,  and  beneath  thera 
a  comparatively  large  number  of  agricultural  laborers.  But  in  the 
medic-eval  manor,  much  the  greater  part  of  the  land  was  cultivated 
by  small  holders.  Between  the  lord  of  the  manor  and  the  villein 
tenants  there  was,  indeed,  a  great  gulf  fixed.  But  there  was  noth- 
ing like  the  social  separation  of  classes  of  actual  cultivators  that 
exists  today. 

It  may  be  well  to  note  the  non-existence  in  the  village  group  of 
certain  elements  which  modem  abstract  economics  is  apt  to  take 
for  granted.  Individual  liberty,  in  the  sense  in  which  we  understand 
it,  did  not  exist;  consequently  there  could  be  no  complete  competi- 
tion. The  payments  made  by  the  villeins  were  not  rents  in  the  ab- 
stract economist's  sense:  for  the  economist  assumes  competition. 
The  chief  thought  of  lord  and  tenant  was,  not  what  the  tenant  could 
possibly  afford,  but  what  was  customary.  And,  finally,  there  was 
as  yet  no  capital  in  the  modern  sense.  Of  course  there  was  capital 
in  the  sense  in  which  the  word  is  defined  by  economists,  "wealth  ap- 
propriated to  reproductive  employment,"  for  the  villeins  had 
ploughs,  harrows,  oxen,  horses.  But  this  is  one  of  the  most  un- 
real of  economic  definitions.  As  has  been  well  said,  by  capital  we 
mean  more  than  this ;  we  mean  a  store  of  wealth  that  can  be  directed 
into  new  and  more  profitable  channels  as  occasion  arises.  In  that 
sense  the  villeins  certainly  had  no  capital. 


4.    Wage-Work  and  the  Handicraft  System' 

BY  CARL  BtJCHER 

When  the  land  owned  by  a  family  becomes  divided  up  and  no 
longer  suffices  for  its  maintenance,  a  part  of  the  rural  population 
begins  to  produce  for  the  market.  At  first  the  necessary  raw  mate- 
rial is  gained  from  their  own  land  or  drawn  from  the  communal  for- 
ests; later  on,  if  need  be,  it  also  is  purchased.    All  sorts  of  allied 

•Adapted  from  Industrial  Evolution,  162-172.  Translated  from  the  third 
German  edition  by  S.  Morley  Wickett.  Copyright  by  Henry  Holt  &  Co. 
(1900). 


ANTECEDENTS  OF  INDUSTRIALISM  II 

productions  are  added;  and  thus  there  develops  an  endlessly  varied 
system  of  peasant  industry  on  a  small  scale. 

But  the  evolution  may  take  another  course,  and  an  independent 
professional  class  of  industrial  laborers  arises  and  with  them  the 
industrial  system  of  wage-work.  Whereas  all  industrial  skill  has 
hitherto  been  exercised  in  close  association  with  property  in  land  and 
tillage,  the  adept  house-laborer  now  frees  himself  from  this  associa- 
tion, and  upon  his  technical  skill  founds  for  himself  an  existence 
that  gradually  becomes  independent  of  property  in  land.  But  he  has 
only  his  simple  tools  for  work;  he  has  no  business  capital.  He 
therefore  always  exercises  his  skill  upon  raw  material  furnished  him 
by  the  producer  of  the  raw  material,  who  is  at  the  same  time  the 
consumer  of  the  finished  product. 

Here  two  distinct  forms  of  this  relationship  are  possible.  In 
one  case  the  wage-worker  is  taken  temporarily  into  the  house, 
receives  his  board  and,  if  he  does  not  belong  to  the  place,  his  lodging 
as  well,  together  with  his  daily  wage ;  and  leaves  when  the  needs  of 
his  customer  are  satisfied.  We  may  designate  this  whole  industrial 
phase  as  that  of  itinerancy,  and  the  laborer  carrying  on  work  in  this 
manner  as  an  itinerant.  The  dressmakers  and  seamstresses  whom 
our  women  are  accustomed  to  take  into  their  houses  may  serve  as 
an  illustration.  On  the  other  hand  the  wage-worker  may  have  his 
own  place  of  business,  and  the  raw  material  be  given  out  to  him. 
For  working  it  up  he  receives  a  piece-work  wage.  In  the  country 
the  miller  and  the  baker  working  for  a  wage  are  examples.  We  will 
designate  this  form  of  work  home-work.  It  is  met  with  chiefly  in 
industries  that  demand  permanent  means  of  production,  difficult  to 
transport.  Both  forms  of  work  are  still  very  common  in  all  parts 
of  the  world.  The  system  can  be  tracted  in  Babylonian  temple  rec- 
ords; it  can  be  followed  in  literature  from  Homer  down  through 
ancient  and  mediaeval  times  to  the  present  day.  These  two  forms  of 
wage-work  have  different  origins.  Itinerant  labor  is  based  upon  the 
exclusive  possession  of  aptitude  for  a  special  kind  of  work,  home- 
work upon  the  exclusive  possession  of  fixed  means  of  production. 
Upon  this  basis  there  arise  all  sorts  of  mixed  forms  between  home- 
work and  wage-work.  The  itinerant  laborer  is  at  first  an  experienced 
neighbor  whose  advice  is  sought  in  carrying  out  an  important  piece 
of  work,  the  actual  work,  however,  still  being  performed  by  members 
of  the  household.  Even  later  it  is  the  practice  for  the  members  of 
the  customer's  family  to  give  the  necessary  assistance  to  the  crafts- 
man. In  the  case  of  home-work  the  latter  tradesman  is  at  first  merely 
the  owner  of  the  business  plant  and  technical  director  of  the  produc- 
tion, the  customer  doing  the  actual  work.  This  frequently  remains 
true  in  the  country  today  with  oil-presses,  flax-mills,  and  cider-mills. 


12  CURRENT  ECONOMIC  PROBLEMS 

From  the  economic  point  of  view  the  essential  feature  of  the 
wage-work  system  is  that  there  is  no  business  capital.  Neither  the 
raw  material  nor  the  finished  industrial  product  is  for  its  producer 
ever  a  means  of  profit.  The  character  and  extent  of  the  production 
are  still  determined  in  every  case  by  the  owner  of  the  soil,  who  pro- 
duces the  raw  material;  he  also  superintends  the  whole  process  of 
production.  From  the  sowing  of  the  seed  until  the  moment  the  bread 
is  consumed  the  product  has  never  been  capital,  but  always  a  mere 
article  for  use  in  course  of  preparation.  No  earnings  of  manage- 
ment and  interest  charges  or  middleman's  profits  attach  to  the  fin- 
ished product,  but  only  wages  for  work  done. 

Under  certain  social  conditions  this  is  a  thoroughly  economic 
method  of  production.  It  secures  the  excellence  of  the  product  and 
the  complete  adjustment  of  supply  to  demand.  But  it  forces  the  con- 
sumer to  run  the  risk  attaching  to  industrial  production,  as  only  those 
needs  that  can  be  foreseen  can  find  suitable  and  prompt  satisfaction, 
while  a  sudden  need  must  always  remain  unsatisfied.  The  system 
has  also  many  disadvantages  for  the  wage-worker.  Among  these 
are  the  inconveniences  and  loss  of  time  suffered  in  his  itinerancy 
from  place  to  place ;  also  the  irregularity  of  employment,  which  leads, 
now  to  the  overwork,  now  to  the  complete  idleness,  of  the  workman. 

In  the  Middle  Ages  wage-work  greatly  facilitated  the  emancipa- 
tion of  the  artisan  from  serfdom  and  feudal  obligations,  as  it  re- 
quired practically  no  capital  to  start  an  independent  business.  It  is  a 
mistake  still  common  to  look  upon  the  class  of  gild  handicraftsmen 
as  a  class  of  small  capitalists.  It  was  in  essence  rather  an  industrial 
laboring  class,  distinguished  from  the  laborers  of  today  by  the  fact 
that  each  worked  not  for  a  single  employer  but  for  a  large  number 
of  consumers.  The  supplying  of  the  material  by  the  customer  is 
common  to  almost  all  mediaeval  handicrafts ;  in  many  instances, 
indeed,  it  continued  for  centuries,  even  after  the  customer  had 
ceased  to  produce  the  raw  material  himself  and  must  buy  it.  The 
furnishing  of  the  raw  material  by  the  master  is  a  practice  that  takes 
slow  root ;  at  first  it  holds  only  for  the  poorer  customers ;  but  later 
for  the  wealthy  as  well.  Thus  arises  handicraft;  but  alongside  it 
wage-work  maintains  itself  for  a  long  time. 

All  the  important  characteristics  of  handicraft  may  be  summed 
up  in  the  single  expression  custom  production.  It  is  the  method  of 
sale  that  distinguishes  this  industrial  system  from  all  later  ones. 
The  handicraftsman  always  works  for  the  consumer  of  his  product, 
whether  it  be  that  the  latter  by  placing  separate  orders  affords  the 
occasion  for  the  v/ork,  or  the  two  meet  at  the  weekly  or  yearly  mar- 


ANTECEDENTS  OF  INDUSTRIALISM  13 

ket.  As  a  rule  the  region  of  sale  is  local.  The  customer  buys  at 
first  hand,  the  handicraftsman  sells  to  the  actual  consumer.  This 
assures  a  proper  adjustment  of  supply  and  demand  and  introduces 
an  ethical  feature  into  the"  whole  relationship;  the  producer  in  the 
presence  of  the  consumer  feels  responsibility  for  his  work. 

With  the  rise  of  handicraft  a  wide  cleft  appears  in  the  process 
of  production.  Hitherto  the  owner  of  the  land  has  conducted  the 
whole  process ;  now  there  are  two  classes  of  economic  activity,  each 
of  which  embraces  only  a  part  of  the  process  of  production,  one  pro- 
ducing the  raw  material,  the  other  the  manufactured  article.  Handi- 
craft endeavored  to  bring  it  about  that  an  article  should  pass  through 
all  its  stages  of  production  in  the  same  workshop.  In  this  way  needed 
capital  is  diminished  and  frequent  additions  to  price  avoided. 

The  direct  relationship  of  the  handicraftsman  and  the  consumer 
of  his  products  made  it  necessary  that  the  business  remain  small. 
Whenever  any  one  line  of  handicraft  threatens  to  become  too  large, 
new  handicrafts  split  off  from  it  and  appropriate  part  of  the  sphere 
of  production.  This  is  the  mediccval  division  of  labor,  which  con- 
tinually creates  new  and  independent  trades. 

Handicraft  is  a  phenomenon  peculiar  to  the  town.  Peoples  which, 
like  the  Russians,  have  developed  no  real  town  life,  know  likewise 
no  national  handicraft.  And  this  also  explains  why,  with  the  forma- 
tion of  large  centralized  states  and  unified  commercial  territories, 
handicraft  was  doomed  to  decline. 


5.     Ordinances  of  the  Gild  Merchant  of  Southampton* 

1.  In  the  first  place,  there  shall  be  elected  from  the  Gild  Mer- 
chant, and  established,  an  alderman,  a  steward,  a  chaplain,  four 
skevins,  and  an  usher.  And  it  is  to  be  known  that  whosoever  shall 
be  alderman  shall  receive  from  each  one  entering  into  the  Gild  four- 
pence;  the  steward,  twopence;  the  chaplain,  twopence;  and  the 
usher,  one  penny.  And  the  Gild  shall  meet  twice  a  year:  that  is  to 
say,  on  the  Sunday  next  after  St.  John  the  Baptist's  day,  and  on 
the  Sunday  next  after  St.  Mary's  day. 

2.  And  when  the  Gild  shall  be  sitting  no  one  of  the  Gild  is 
to  bring  in  any  stranger,  except  when  required  by  the  alderman  or 
steward. 

3.  And  when  the  Gild  shall  sit,  the  alderman  is  to  have,  each 
night,  so  long  as  the  Gild  sits,  two  gallons  of  wine  and  two  candles, 

^Adapted  from  University  of  Pennsylvania,  Translations  and  Reprints 
from  the  Original  Sources  of  European  History,  Vol.  II,  No.  r,  English 
Towns  and  Gilds,  12-17  (about  1300). 


14  CURRENT  ECONOMIC  PROBLEMS 

and  the  steward  the  same;  and  the  four  skevins  and  the  chaplain, 
each  of  them  one  gallon  of  wine  and  one  candle,  and  the  usher  one 
gallon  of  wine. 

4.  And  when  the  Gild  shall  sit,  the  lepers  of  La  Madeleine 
shall  have  of  the  alms  of  the  Gild,  two  sesters  of  ale,  and  the  sick 
of  God's  House  and  of  St.  Julian  shall  have  two  sesters  of  ale.  And 
the  Friar's  Minors  shall  have  two  sesters  of  ale  and  one  sester  of 
wine.  And  four  sesters  of  ale  shall  be  given  to  the  poor  wherever 
the  Gild  shall  meet. 

5.  And  when  the  Gild  is  sitting,  no  one  who  is  of  the  Gild 
shall  go  outside  of  the  town  for  any  business,  without  the  permis- 
sion of  the  steward.  And  if  any  one  does  so,  let  him  be  fined  two 
shillings,  and  pay  them. 

6.  And  when  the  Gild  sits,  and  any  gildsman  is  outside  of  the 
city  so  that  he  does  not  know  when  it  will  happen,  he  shall  have 
a  gallon  of  wine,  if  his  servants  come  to  get  it. 

9.  And  when  a  gildsman  dies,  his  eldest  son  or  his  next  heir 
shall  have  the  seat  of  his  father,  or  of  his  uncle,  if  his  father  was 
not  a  gildsman,  and  of  no  other  one;  and  he  shall  give  nothing  for 
his  seat.  No  husband  can  have  a  seat  in  the  Gild  by  right  of  his 
wife,  nor  demand  a  seat  by  right  of  his  wife's  ancestors. 

10.  And  no  one  has  the  right  or  power  to  sell  or  give  his  seat 
in  the  Gild  to  any  man. 

19.  And  no  one  in  the  city  of  Southampton  shall  buy  anything 
to  sell  again  in  the  same  city,  unless  he  is  of  the  Gild  Merchant  or 
of  the  franchise.  And  if  anyone  shall  do  so  and  is  convicted  of  it, 
all  which  he  has  so  bought  shall  be  forfeited  to  the  king. 

20.  And  no  one  shall  buy  honey,  fat,  salt  herrings,  or  any  kind 
of  oil,  or  millstones,  or  fresh  hides,  or  any  kind  of  fresh  skins,  un- 
less he  is  a  gildsman ;  nor  keep  a  tavern  for  wine,  nor  sell  cloth  at 
retail,  except  in  market  or  fair  days ;  nor  keep  grain  in  his  granary 
beyond  five  quarters,  to  sell  at  retail,  if  he  is  not  a  gildsman ;  and 
whoever  shall  do  this  and  be  convicted  shall  forfeit  all  to  the  king. 

21.  No  one  of  the  Gild  ought  to  be  partner  or  joint  dealer  in 
any  of  the  kinds  of  merchandise  before  mentioned  with  anyone 
who  is  not  of  the  Gild,  by  any  manner  of  coverture,  or  art,  or  con- 
trivance, or  collusion,  or  in  any  other  manner. 

23.  And  no  private  man  nor  stranger  shall  bargain  for  or  buy 
any  kind  of  merchandise  coming  into  the  city  before  a  burgess  of 
the  Gild  Merchant,  so  long  as  the  gildsman  is  present  and  wishes  to 
bargain  for  and  buy  this  merchandise. 

24.  And  anyone  who  is  of  the  Gild  Merchant  shall  share  in  al* 
merchandise  which  another  gildsman  shall  buy  or  any  other  person. 


ANTECEDENTS  OF  INDUSTRIALISM  15 

whoever  he  is,  if  he  comes  and  demands  part  and  is  there  where  the 
merchandise  is  bought,  and  also  if  he  gives  satisfaction  to  the  seller 
and  gives  security  for  his  part. 

63.  No  one  shall  go  out  to  meet  a  ship  bringing  wine  or  other 
merchandise  coming  to  the  town,  in  order  to  buy  anything,  before 
the  ship  be  arrived  and  come  to  anchor  for  unloading;  and  if  any 
one  does  so  and  is  convicted,  the  merchandise  which  he  shall  "have 
bought  shall  be  forfeited  to  the  king. 

6.     Ordinances  of  the  White-Tawyers' 

In  honour  of  God,  of  Our  Lady,  and  of  All  Saints,  and  for  the 
nurture  of  tranquillity  and  peace  among  the  good  folks  the  Megu- 
cers,  called  white-tawyers,  the  folks  of  the  same  trade  have,  by  as- 
sent of  Richard  Lacer,  Mayor,  and  of  the  Aldermen,  ordained  the 
points  under-written. 

In  the  first  place,  they  have  ordained  that  they  will  find  a  wax 
candle,  to  bum  before  Our  Lady  in  the  Church  of  AUhallows,  near 
London  wall. 

And  if  any  one  of  the  said  trade  shall  depart  this  life,  and  have 
not  wherewithal  to  be  buried,  he  shall  be  buried  at  the  expense  of 
their  common  box.  And  when  any  one  of  the  said  trade  shall  die, 
all  those  of  the  said  trade  shall  go  to  the  vigil,  and  make  offering 
on  the  morrow% 

Also,  that  no  one  of  the  said  trade  shall  induce  the- servant  of 
another  to  work  w'ith  him  in  the  said  trade,  until  he  has  made  a 
proper  fine  with  his  first  master,  at  the  discretion  of  the  said  over- 
seers, or  of  four  reputable  men  of  the  said  trade.  And  if  anyone 
shall  do  to  the  contrary'  thereof,  or  receive  the  serving  w^orkman  of 
another  to  woric  with  him  during  his  term,  without  leave  of  the  trade, 
he  is  to  incur  the  said  penalty.  Also,  that  no  one  shall  take  for 
working  in  the  said  trade  more  than  they  were  wont  heretofore. 

7.     Preamble  to  the  Ordinances  of  the  Gild  of  the  Tailors,  Exeter^ 

To  the  worship  of  God  and  of  our  Lady  Saint  Mary,  and  of  St. 
John  the  Baptist,  and  of  all  Saints:  These  be  the  Ordinances  made 
and  established  of  the  fraternity  of  craft  of  tailors,  of  the  city  of 
Exeter,  by  assent  and  consent  of  the  fraternity  of  the  craft  afore- 
said gathered  there  together,  for  evermore  to  endure. 

"Adapted  from  University  of  Pennsylvania,  ibid.,  23-25  (Fourteenth 
Century). 

"Adapted  from  University  of  Pennsylvania,  ibid.,  26  (1466). 


1 6  CURRENT  ECONOMIC  PROBLEMS 

C.     MEDIAEVAL  COMMERCE 
8,     A  Definition  of  Commerce^ 

BY  J.  DORSEY  FORREST 

Attempts  to  study  the  development  of  commerce  have  usually 
been  unsatisfactory  because  they  have  failed  to  distinguish  between 
real  commercial  activity  and  the  mere  external  mechanism  of  ships 
and  roads  and  travelers.  The  real  history  of  commerce  which  will 
some  time  be  written  will  give  some  account  of  the  production  which 
has  fed  commerce,  as  well  as  a  description  of  the  routes,  and  of 
some  actual  exchanges  which  indicate  that  commerce  had  actually 
been  going  on.  Such  phenomena  of  the  mechanism  of  trade  are 
worthy  of  note,  but  only  as  guiding  the  student  to  a  deeper  study 
of  the  dynamical  phenomena  of  which  these  are  but  surface  indica- 
tions. Real  commerce  represents  a  differentiation  of  function  b> 
which  the  diverse  parts  of  society  come  into  complex  and  organic 
relations  with  one  another. 

9.     The  Attitude  of  the  Mediaeval  Church  toward  Commerce^ 

BY  WIELIAM  J.  ASHLEY 

The  teaching  of  the  Gospel  as  to  worldly  goods  had  been  un- 
mistakable. It  had  repeatedly  warned  men  against  the  pursuit  of 
wealth,  which  would  alienate  them  from  the  service  of  God  and 
choke  the  good  seed.  It  had  in  one  striking  instance  associated 
spiritual  perfection  with  the  selling  of  all  that  a  man  had  that  he 
might  give  it  to  the  poor.  It  had  declared  the  poor  and  hungry 
blessed,  and  had  prophesied  woes  to  the  rich.  Instead  of  anxious 
thought  for  the  food  and  raiment  of  the  morrow,  it  had  taught  trust 
in  God ;  instead  of  selfish  appropriation  of  whatever  a  man  could 
obtain,  a  charity  which  gave  freely  to  all  who  asked.  And  in  the 
members  of  the  earliest  Christian  Church  it  presented  an  example 
of  men  who  gave  up  their  individual  possessions,  and  had  all  things 
in  common. 

We  cannot  wonder  that,  with  such  lessons  before  them,  a  salu- 
tary reaction  from  the  self-seeking  of  the  pagan  world  should  have 
led  the  early  Christian  Fathers  totally  to  condemn  the  pursuit  of 
gain.     It  took  them  further — to  the  denial  to  the  individual  of  the 

'Adapted  from  The  Development  of  Western  Civilization,  104.  Copy- 
right by  the  University  of  Chicago  (1906). 

^Adapted  from  An  Introduction  to  English  Economic  History  and  Theory, 
I,  126-132  (1894). 


ANTECEDENTS  OF  INDUSTRIAUSM  17 

right  to  do  what  he  liked  with  his  own,  even  to  enjoy  in  luxury  the 
-.vealth  he  possessed.  "What  injustice  is  there  in  my  diligently 
preserving  my  own,  so  long  as  I  do  not  invade  the  property  of  an- 
other?" "Shameless  saying!"  says  S.  Ambrose.  "My  own,  sayest 
thou?  what  is  it?  from  what  secret  places  hast  thou  brought  it  into 
this  world?  When  thou  enterest  into  the  light,  when  thou  earnest 
from  thy  mother's  womb,  what  wealth  didst  thou  bring  with  thee? 
That  which  is  taken  by  thee,  beyond  what  would  suffice  to  thee,  is 
taken  by  violence.  Is  it  that  God  is  unjust,  in  not  distributing  to 
us  the  means  of  life  equally,  so  that  thou  shouldst  have  abundance 
while  others  are  in  want  ?  It  is  the  bread  of  the  hungry  thou  keep- 
est,  it  is  the  clothing  of  the  naked  thou  lockest  up;  the  money  thou 
buriest  is  the  redemption  of  the  wretched."  To  seek  to  enrich  one's 
self  was  not,  simply,  to  incur  spiritual  risk  to  one's  own  soul ;  it  was 
in  itself  unjust,  since  it  aimed  at  appropriating  an  unfair  share  of 
what  God  had  intended  for  the  common  use  of  men.  If  a  man  pos- 
sessed more  than  he  needed,  he  was  bound  to  give  his  superfluity  to 
the  poor ;  for  by  natural  law  he  had  no  personal  right  to  it ;  he  was 
only  a  steward  for  God. 

If,  however,  to  seek  to  enrich  one's  self  was  sinful,  was  trade 
itself  justifiable?  This  was  a  question  which  troubled  many  con- 
sciences during  the  Middle  Ages.  On  the  one  hand  the  benefits 
which  trade  conferred  on  society  could  not  be  altogether  overlooked, 
nor  the  fact  that  with  many  traders  the  object  was  only  to  obtain 
what  sufficed  for  their  own  maintenance.  On  the  other  hand  they 
saw  that  trade  was  usually  carried  on  by  men  who  had  enough  al- 
ready, and  whose  chief  object  was  their  own  gain :  "If  covetousness 
is  removed,"  urges  TertuUian,  "there  is  no  reason  for  gain,  and,  if 
there  is  no,  reason  for  gain,  there  is  no  need  of  trade."  Moreover,, 
as  the  trader  did  not  seem  himself  to  add  to  the  value  of  his  wares,! 
if  he  gained  more  for  them  than  he  had  paid,  his  gain,  said  »S. ' 
Jerome,  must  be  another's  loss ;  and.  in  any  case,  trade  was  danger- 
ous to  the  soul,  since  it  was  scarcely  possible  for  a  merchant  not 
sometimes  to  act  deceitfully.  To  all  these  reasons  was  added  yet 
another.  The  thought  of  the  supreme  importance  of  saving  the  in- 
dividual soul,  and  of  communion  with  God,  drove  thousands  into 
the  hermit  life  of  the  wilderness,  or  into  monasteries;  and  it  led 
even  such  a  man  as  Augustine  to  say  that  "business"  was  in  itself 
an  evil,  for  "it  turns  men  from  seeking  true  rest,  which  is  God." 

In  the  eleventh  century  began  a  great  moving  of  the  stagnant 
waters.  The  growth  of  towns,  the  formation  of  merchant  bodies, 
the  establishment  of  markets, — even  if  they  did  no  more  than  fur- 
nish the  peasant  and  the  lord  of  the  manor  with  a  market  for  their 


i8  CURRENT  ECONOMIC  PROBLEMS 

surplus  produce, — brought  men  face  to  face  with  one  another  as 
buyer  and  seller  in  a  way  they  had  not  been  before.  Hence  economic 
questions,  especially  such  as  concerned  the  relations  of  seller  and 
buyer,  of  creditor  and  debtor,  became  of  the  first  importance  To 
deal  with  these  new  questions  a  new  jurisprudence  presented  itself, 
— the  jurisprudence  based  on  the  revived  study  of  Roman  law.  The 
Roman  law,  in  the  finished  form  in  which  the  codification  of  Jus- 
tinian presented  it,  rested  on  a  theory  of  absolute  individual  prop- 
erty which  was  entirely  alien  to  the  usages  of  early  Teutonic  peo- 
ples, among  whom  community  of  ownership,  or  at  any  rate  com- 
munity in  use,  was  still  a  prevalent  custom ;  and  it  recognized  a -i 
unlimited  freedom  of  contract,  which  may  have  been  suitable  to  the 
active  commerce  of  the  Mediterranean,  but  was  sure  to  be  the  in- 
strument of  injustice  when  appealed  to  in  the  midst  of  more  primi- 
tive social  conditions. 

With  these  new  dangers  before  them,  churchmen  began  once 
more  to  turn  their  attention  to  economic  matters,  and  to  meet  what 
they  regarded  as  the  evil  tendencies  of  the  Roman  law,  "the  prin- 
ciple of  the  world,"  by  a  fresh  application  of  Christian  principles. 
On  two  doctrines  especially  did  they  insist, — that  wares  should  be 
sold  at  a  just  price,  and  that  the  taking  of  interest  was  sinful.  They 
enforced  them  from  the  pulpit,  in  the  confessional,  in  the  ecclesias- 
tical courts;  and  by  the  time  that  the  period  begins  of  legislative 
activity  on  the  part  of  the  secular  power,  these  two  rules  had  been 
so  impressed  on  the  consciences  of  men  that  Parliament,  municipality, 
and  gild  endeavoured  of  their  own  motion  to  secure  obedience  to 
them. 

10.     The  Contribution  of  the  Church  to  Commercial  Develop- 
ment^ 

BY  J.  DORSEY  FORRKST 

A  necessary  prerequisite  of  commercial  development  was  the 
establishment  of  an  efficient  agricultural  system.  In  perfecting  the 
agricultural  organization  the  ecclesiastical  domains  served  as  models 
to  the  smaller  lay  proprietors.  The  monasteries  depended  more  on 
rational  organization  than  on  personal  p>ower,  and  kept  alive  the 
more  efficient  methods  employed  by  the  Romans  in  earlier  days. 
The  monasteries  usually  established  themselves  on  waste  lands,  for 
the  prime  object  of  the  monks  was  retirement.  After  the  invasions 
they  had  no  difficulty  in  finding  waste  lands  even  in  regions  which 

•Adapted  from  The  Development  of  Western  Civilisation,  176-179, 
190-104.     Copvright  by  the  University  of  Chicago  (1906). 


ANTECEDENTS  OF  INDUSTRIALISM  ig 

had  been  most  highly  cultivated.  Great  saints  could  live  holy  lives 
as  hermits;  but  when  masses  of  men  were  gathered  together,  it 
became  necessary  for  the  leaders  to  lay  down  rules  for  practical 
activity.  The  poverty  from  which  many  of  the  monks  came,  the 
reverence  of  the  Church  for  the  Son  of  the  Carpenter,  and  the  ne- 
cessity of  labor  for  a  means  of  subsistence,  all  combined  to  give 
manual  labor  a  high  moral  value  in  the  monasteries.  Accordingly 
monastic  rules  enjoined  the  duty  of  manual  labor  as  a  moral  disci- 
pline. 

A  second  prerequisite  of  commerce  was  the  division  of  labor  and 
the  development  of  the  crafts.  In  time  neighboring  lords  would 
give  vast  domains,  with  their  villeins,  to  the  monasteries  in  return 
for  prayers.  As  the  monasteries  thus  grew  wealthy,  a  revolution 
came  in  the  management  of  their  internal  affairs.  All  had  to  find 
a  way  to  divide  labor  and  to  make  some  members  of  the  community 
mere  laborers.  In  feudal  times  this  division  was  well  advanced. 
For  centuries  the  monks  had  kept  alive  many  crafts,  and  the  causes 
just  referred  to  advanced  these  both  in  number  and  in  technique. 

In  spite  of  the  disorder  which  had  troubled  Europe  from  the 
time  of  the  first  invasion,  there  was  never  a  time  when  commercial 
intercourse  was  entirely  wanting.  During  the  period  of  most  com- 
plete disorganization  the  Tews  carried  on  a  casual  trade  in  oriental 
luxuries  and  handled  about  all  the  money  that  circulated.  United 
by  faith  and  common  traditions,  in  constant  touch  with  co-religion- 
ists in  other  countries,  they  formed  an  organic  body  in  the  midst 
of  universal  dissolution.  The  very  action  of  the  church  upon  the 
lay  society  contributed  to  their  prosperity.  The  canons  of  the 
councils  in  denying  to  Christians  the  right  to  exact  usury  assured 
to  the  Jews  a  monopoly  of  the  money  business.  Through  their  inti- 
mate relations  with  the  Mohammedans,  they  were  able  to  communi- 
cate with  the  East  at  a  time  when  no  Christian  could  sail  upon  the 
Mediterranean.  The  Church  condoned  their  offenses  against  Chris- 
tian morality  because  their  services  as  money-lenders  and  dealers  in 
valuables  were  indispensable.  They  were  found  also  dispersed 
throughout  the  country,  and  on  the  domains  plied  their  trade  as 
pawnbrokers  among  the  villages  and  brokers  for  the  lords.  Though 
the  business  of  the  Jews  had  some  importance  as  a  stimulus  to 
greater  demands  for  luxuries,  it  can  hardly  be  considered  a  part  of 
the  commerce  of  Europe.  Such  commodities  as  spices,  perfumes, 
silks,  tapestries,  precious  stones,  and  jewelry  were  of  little  import- 
ance in  the  social  development  of  Europe. 

Preparation  for  the  revival  of  commerce  was  made  by  the 
Church.     The  importance  of  magic  made  it  desirable  to  transport 


20  CURRENT  ECONOMIC  PROBLEMS 

sacred  relics  from  place  to  place ;  and  the  need  of  pictorial  services 
required  the  transportation  of  church  furnishings  from  Byzantium 
and  Italy  to  the  less  advanced  communities.  For  the  manufacture 
of  glass  and  the  erection  of  the  earlier  buildings  artisans  themselves 
had  to  be  imported  from  the  East  and  the  South.  There  was  also 
a  constant  intercommunication  in  certain  sections  through  pilgrim- 
ages to  noted  shrines.  When  special  festivals  were  held  at  these 
shrines,  large  numbers  of  pilgrims  would  be  present  at  the  same 
time.  The  provisioning  of  such  a  company  would  occasion  consid- 
erable trade,  and  peddlars  and  traders  would  naturally  join  the 
pilgrims.  Sometimes  the  monks  were  themselves  traders.  Some- 
times men  would  bring  their  simple  manufactures  from  domains 
in  the  neighborhood.  In  some  instances  the  important  fairs  sprang 
up  at  these  favorite  shrines.  But,  aside  from  trade,  the  pilgrimages 
themselves  kept  up  communication  between  different  points.  Again 
the  superstitious  awe  in  which  the  Church  was  held  made  it  possi- 
ble for  priests  and  monks  and  messengers  and  pilgrims  to  travel 
from  place  to  place  as  neither  merchants  nor  soldiers  could  do.  Thus 
the  commerce  of  the  Church  and  the  travel  inspired  by  the  Church 
served  to  keep  open  routes  which  were  closed  to  ordinary  travelers, 
and  to  bring  remote  regions  into  communication  with  each  other. 

The  episcopal  cities  were  also  centres  of  incipient  commercial 
transactions.  Since  the  bishop  did  not  move  from  one  domain  to 
another  to  consume  the  products  of  each  in  turn,  as  the  lay  nobles 
did,  the  products  of  surrounding  mapors  had  to  be  transported  to 
the  residence  of  the  bishop.  Thus  there  was  maintained  a  kind  of 
industrial  concentration  that  might  form  the  basis  for  new  city  life. 
In  these  various  ways  the  churches  and  monasteries  contributed 
largely  to  the  commercial  development.  But  they  simply  prepared 
society  for  a  revival  of  commercial  activity  by  keeping  up  com- 
munication and  furnishing  inns  for  travelers. 

II.     Italian  Commerce  and  Industry  in  the  Fourteenth  Century^" 

BY  THOMAS  B.  MACAUIvAY 

Liberty,  partially  indeed  and  transciently,  revisited  Italy ;  and  with 
liberty  came  commerce  and  empire,  science  and  taste,  all  the  com- 
forts and  all  the  ornaments  of  life.  The  Crusades,  from  which  the 
inhabitants  of  other  countries  gained  nothing  but  relics  and  wounds, 
brought  to  the  rising  commonwealths  of  the  Adriatic  and  Tyrrhene 
seas  a  large  increase  of  wealth,  dominion,  and  knowledge.     The 

^'Adapted  from  the  essay  on  Machiavelli  (1827). 


ANTECEDENTS  OF  INDUSTRIALISM  .  21 

moral  and  geographical  position  of  these  commonwealths  enabled 
-them  to  profit  alike  by  the  barbarism  of  the  West  and  the  civiliza- 
tion of  the  East.  Italian  ships  covered  every  sea.  Italian  factories 
rose  on  every  shore.  The  tables  of  Italian  moneychangers  were 
set  in  every  city.  Manufactures  flourished.  Banks  were  established. 
The  operations  of  the  commercial  machine  were  facilitated  by  many 
useful  and  beautiful  inventions.  We  doubt  whether  any  country 
of  Europe,  our  own  excepted,  has  at  the  present  time  reached  so 
high  a  point  of  wealth  and  civilization  as  some  parts  of  Italy  had 
attained  four  hundred  years  ago.  Historians  rarely  descend  to  those 
details  from  which  alone  the  real  state  of  a  community  can  be  col- 
lected. Hence  posterity  is  too  often  deceived  by  the  vague  hyper- 
boles of  poets  and  rhetoricians,  who  mistake  the  splendour  of  a 
court  for  the  happiness  of  a  people.  Fortunately  John  Villani  has 
given  us  an  ample  and  precise  account  of  the  state  of  Florence  in 
the  early  part  of  the  fourteenth  century.  The  revenue  of  the  Re- 
public amounted  to  three  hundred  thousand  florins ;  a  sum  which, 
allowing  for  the  depreciation  of  the  precious  metals,  was  at  least 
equivalent  to  six  hundred  thousand  pounds  sterling ;  a  larger  sum 
than  England  and  Ireland,  two  centuries  ago,  yielded  annually  to 
Elizabeth.  The  manufacture  of  wool  alone  employed  two  hundred 
factories  and  thirty  thousand  workmen.  The  cloth  annually  pro- 
duced sold,  at  an  average,  for  twelve  hundred  thousand  florins ;  a 
sum  fully  equal  in  exchangeable  value  to  two  millions  and  a  half 
of  our  money.  Four  hundred  thousand  florins  were  annually  coined. 
Eighty  banks  conducted  the  commercial  operations,  not  of  Florence 
only  but  of  all  Europe.  The  transactions  of  these  establishments 
were  sometimes  of  a  magnitude  which  may  surprise  even  the  con- 
temporaries of  the  Barings  and  the  Rothchilds.  Two  houses  ad- 
vanced to  Edward  the  Third  of  England  upwards  of  three  hundred 
thousand  marks,  at  a  time  when  the  mark  contained  more  silver  than 
fifty  shillings  of  the  present  day,  and  wh^n  the  value  of  silver  was 
more  than  quadruple  of  what  it  now  is.  The  city  and  its  environs 
contained  a  hundred  and  seventy  thousand  inhabitants. 

D.     MEDIEVAL  INDUSTRIAL  POLICY 
12.     The  Spirit  of  Solidarity  in  the  Mediaeval  Town 

Town  and  gild  ordinances  furnish  abundant  evidence  of  a  spirit 
of  social  solidarity  animating  industrial  legislation  which  is  quite  for- 
eign to  the  modern  point  of  view.  There  was  a  determined  attempt  or^ 
the  part  of  the  authorities  to  prevent  "regrating,"  or  buying  to  sell 
again  at  a  higher  price ;  "forestalling,"  or  outwitting  fellow  dealers 


22  ,  CURRENT  ECONOMIC  PROBLEMS  ■ 

by  purchasing  goods  before  they  came  into  open  market ;  and  "en- 
grossing," or  the  modern  cornering-the-market.  Gild  documents 
are  replete  with  statutes  the  purpose  of  which  was  to  secure  to  the 
consumer  the  use  of  the  best  raw  materials,  the  exercise  of  care  and 
skill  on  the  part  of  the  workman,  and  full  measure.  While  instances 
could  be  multiplied,  the  custom  in  the  city  of  Chester  that  "a  man 
or  woman  making  false  measure  and  being  arrested,  compounded 
for  it  with  four  shillings ;"  the  custom  in  the  same  town  of  punish- 
ing with  the  ducking  stool  the  maker  of  bad  ale ;  and  the  statute  of 
the  spurriers  of  London  to  the  -effect  that  "no  one  of  the  trade  of 
spurriers  shall  woric  longer  than  from  the  beginning  of  the  day  until 
curfew  rings  out  of  the  church  of  St.  Sepulcher,"  are  typical  exam- 
ples of  legislation  of  this  kind.  But  perhaps,  to  the  modem  mind, 
the  strangest  of  all  the  customs  was  the  levying  of  export  duties  and 
the  frequent  prohibition  of  the  export  of  certam  articles,  usually 
food-stuffs.  The  purpose  of  such  taxes  and  prohibitions  is  implicit 
in  the  frequently  appended  clause,  "because  of  the  scarcity  of  the 
commodity  in  the  city  of  late."  A  careful  examination  of  the  evi- 
dence shows  that  it  was  framed  in  the  interest  of  producers-consum- 
ers by  men  who  were  not  sufficiently  used  to  the  intermediate  money 
term  to  separate  the  two  parts  of  the  economic  process. 

An  explanation  of  the  attitude  implicit  in  this  legislation  is  sim- 
ple when  the  conditions  of  life  in  the  mediaevaf  town  are  kept  clearly 
in  mind.  These  laws  were  enacted,  not  because  men  of  the  Middle 
Ages  were  less  acquisitive  than  modern  men,  or  were  more  imbued 
with  the  spirit  of  Christianity,  but  because  of  the  peculiar  exigen- 
cies of  Mediaeval  town  life.  The  Mediaeval  town,  settled  by  alien 
merchants,  villeins  from  near-by  manors,  emancipated  or  runaway 
serfs,  and  fortune  seekers  from  far  and  near,  began  its  career  with 
no  sharply  drawn  class  lines  and  few  local  traditions.  It  was  the 
product  of  a  new  industrial  movement  which  threatened  to  rob  the 
First  and  Second  Estates  of  the  social  and  economic  preeminence 
which  they  had  enjoyed  for  centuries.  The  nature  and  aspirations 
of  town  life  were  incompatible  with  the  customs  of  feudalism. 
There  was  an  inevitable  opposition  between  the  larger  industrial 
entity  which  bourgoisie  life  made  necessary  and  the  smaller  unit  in 
which  alone  the  spirit  of  feudalism  could  survive.  There  developed 
consequently  a  hostility  between  the  old  and  the  new,  and  it  became 
necessary  to  fight  for  existence.  From  such  a  common  struggle  a 
spirit  of  solidarity  necessarily  emerged. 

An  influence  even  stronger  was  the  economic  dependence  of  the 
town.  It  will  not  be  denied,  I  think,  that  where  the  conditions  of 
existence  are  severe,  a  strong  feeling  of  common  interests  grows 


ANTECEDENTS  OF  INDUSTRIALISM  23 

up  within  the  group.  Such  conditions  existed  in  the  mediaeval  town. 
It  must  be  admitted  that  the  transition  from  the  Roman  system  of 
slavery  to  the  mediaeval  system  of  serfdom  represented  a  great  eco- 
nomic gain.  The  serf,  freed  from  gang  work  and  thrown  on  his 
own  resources,  with  rents  fixed  by  immutable  custom,  and  with  the 
assurance  of  a  right  to  enjoy  all  the  surplus  produced  above  the  stip- 
ulated rent,  held  a  position  that  gave  promise  of  efficiency.  He  was 
in  position  to  produce  an  agricultural  surplus,  a  necessary  antece- 
dent to  the  development  of  the  town.  But  the  real  gain  in  the  transi- 
tion from  slavery  to  serfdom  was  potential  and  not  actual.  It  is 
very  doubtful  whether  the  serf  of  the  twelfth  century  was  produc- 
ing as  much  as  the  slave  in  the  palmy  days  of  the  Empire.  To  make 
this  potential  surplus  actual,  the  wants  of  the  agricultural  laborer 
had  to  be  developed.  Despite  the  principle  of  the  indefinite  expansi- 
bility of  wants,  this  process  was  slow,  depending  upon  the  chance 
visits  of  travelling  merchants,  the  fairs,  and  the  slow  development 
of  the  towns.  Consequently  the  precariousness  of  its  food  supply 
made  the  threat  of  starvation  a  very  real  one  to  the  town.  The 
result  was  necessarily  legislation  which  sought  to  conserve  the  food 
supply. 

It  is  true  that  differentiation  of  occupations  characterized  the 
town  almost  from  the  very  beginning.  Even  in  the  days  of  the 
early  gild  merchant  individual  interests  were  not  completely  iden- 
tical with  communal  interests.  But  the  technical  methods  of  the 
gildsman  were  simple  and  direct,  necessitating  the  use  of  very  little 
capital,  and  causing  industry  to  be  carried  on  on  a  small  scale.  The 
relationship  of  the  master  workman  to  the  members  of  his  estab- 
lishment was  personal.  Generally  speaking  goods  were  made  to 
order.  The  artisan  knew  the  eccentricities  of  his  customers,  and  was 
anxious  to  humor  them.  The  industrial  process  was  a  short-time 
one,  goods  were  generally  consumed  in  the  neighborhood  in  which 
they  were  produced,  and  if  any  flaw  in  material  or  defect  in  work- 
manship was  discovered,  the  producer  would  likely  hear  of  it. 
Under  such  conditions  the  social  ownership  of  productive  goods 
only  gradually  gave  way  to  the  ever-enlarging  area  of  indi- 
vidual property-rights.  Hence  the  two  processes  of  produc- 
tion and  consumption  were  practically  identified  in  the  mind 
of  the  townsman. 

This  breadth  of  view-point  in  domestic  relations  can  best  be 
understood  by  its  contrast  with  the  townsman's  conduct  of  for- 
eign or  out-of-town  trade.  The  current  code  of  business  ethics 
allowed  inferior  materials  and  poor  workmanship  to  be  used  in 
the  production  of  articles  for  the  foreign  market.     The  interests 


24  CURRENT  ECONOMIC  PROBLEMS 

of  the  foreigner  were  not  protected  by  the  customary,  or  just, 
price;  and  if,  by  hook  or  crook,  the  townsman  could  put  off  short 
weight  on  the  foreigner,  so  much  the  better.  In  short,  here  the 
element  of  personality  was  minimized ;  and,  for  that  reason,  pro- 
duction, the  social  means,  became  to  the  artisan  an  individual  end. 
In  this  attitude  toward  foreign  trade  is  to  be  found  the  beginning 
of  the  entrepreneur  view-point.  As  the  industrial  entity  increased 
in  size  and  complexity,  as  the  time  of  the  productive  process  was 
lengthened,  and  as  business  relations  became  more  impersonal,  it  is 
quite  natural  that  the  gildsman's  attitude  towards  foreigners  should 
come  to  be  his  attitude  towards  all  customers. 

Yet  the  influence  of  mediaeval  thought  in  promoting  the  spirit  of 
solidarity  is  not  to  be  wholly  overlooked.  The  town  was  born  in  an 
atmosphere  saturated  with  the  spirit  of  Mediaeval  Catholicism. 
Brotherhood  and  equality  had  long  been  preached  by  the  Church. 
Vertical,  or  inter-class  equality  was  never  realized,  either  in  Chiv- 
alry or  in  the  Church.  But  many  mediaeval  institutions  presented  at 
least  a  fair  semblance  of  horizontal,  or  intra-class  equality.  It  was 
under  the  influence  of  ecclesiastical  precedents  that  the  towns  es- 
tablished their  new  organizations.  A  study  of  the  characteristic 
features  of  the  gilds  shows  how  great  was  the  number  of  things  for 
which  they  were  indebted  to  religious  institutions,  and  how  few 
were  the  real  innovations  springing  out  of  the  newly  created  urban 
life.  Influenced  by  such  habits  of  thought  and  freed  from  the  ob- 
stacles opposed  by  an  already  stratified  society,  the  merchant  gild 
legislated  with  the  end  in  view  of  placing  social  interests  above  class 
or  individual  interests.  Intellectual  conditions  and  the  pressure  of 
economic  and  political  necessity  prevented  the  formal  sacrifice  of 
social  weal  to  individual  acquisition. 

13.     Articles  of  the  Spurriers  of  London" 

In  the  first'  place, — that  no  one  of  the  trade  of  Spurriers  shall 
work  longer  than  from  the  beginning  of  day  until  curfew  rung  out 
at  the  Church  of  St.  Sepulchre,  without  Newgate ;  by  reason  that  no 
man  can  work  so  neatly  by  night  as  by  day.  And  many  persons  of 
the  said  trade,  who  compass  how  to  practice  deception  in  their 
work,  desire  to  work  by  night  rather  than  by  day ;  and  then  they 
introduce  false  iron,  and  iron  that  has  been  cracked,  for  tin;  and 
also  they  put  gilt  on  false  copper,  and  cracked.  And  further. — 
many  of  the  said  trade  are  wandering  about  all  day,  without  work- 
ing at  all  at  their  trade ;  and  then  when  they  have  become  drunk 

"Adapted  from  University  of  Pennsylvania,  op.  cit.,  21-22  (1345). 


ANTECEDENTS  OF  INDUSTRIALISM  25 

and  frantic,  they  take  to  their  work,  to  the  annoyance  of  the  sick, 
and  all  their  neighborhood,  as  well  by  reason  of  the  broils  that  arise 
between  them  and  the  strange  folks  who  are  dwelling  among  them. 
And  then  they  blow  up  their  fires  so  vigorously,  that  their  forges 
begin  all  at  once  to  blaze  to  the  gjeat  peril  of  themselves  and  of  all 
the  neighborhood  around.  And  then,  too,  all  the  neighbors  are 
much  in  dread  of  the  sparks,  which  so  vigorously  issue  forth  in  all 
directions  from  the  mouths  of  the  chimneys  in  their  forges.  By 
reason  thereof  it  seems  unto  them  that  working  by  night  should  be 
put  an  end  to,  in  order  such  false  work  and  such  perils  to  avoid : 
and,  therefore,  the  Mayor  and  the  Aldermen  do  will,  by  the  assent 
of  the  good  folks  of  the  said  trade,  and  for  the  common  profit,  that 
from  henceforth  such  time  for  woricing,  and  such  false  work  made 
in  the  trade,  shall  be  forbidden. 

14.     Mediaeval  Tricks  of  Trade^^ 

BY  BERTHOl,D  VON  REGENSBURG 

The  first  are  ye  that  work  in  clothing,  silks,  or  wool  or  fur, 
shoes  or  gloves  or  girdles.  Men  can  in  nowise  dispense  with  yoii ; 
men  must  needs  have  clothing;  therefore  should  ye  so  serve  them 
as  to  do  your  work  truly ;  not  to  steal  half  the  cloth,  or  to  use  other 
guile,  mixing  hair  with  your  wool  or  stretching  it  out  longer,  where- 
by a  man  thinketh  to  have  gotten  good  cloth,  yet  thou  hath  stretched 
it  to  be  longer  than  it  should  be,  and  maketh  a  good  cloth  into 
worthless  stuff.  Nowadays  no  man  can  find  a  good  hat  for  thy 
falsehood ;  the  rain  w-ill  pour  down  through  the  brim  into  his  bosom. 
Even  such  deceit  is  there  in  shoes,  in  furs,  in  curriers'  work ;  one 
man  sells  an  old  skin  for  a  new,  and  how  manifold  are  thy  deceits 
no  man  knoweth  so  well  as  thou  and  thy  master  the  devil. 

The  second  folk  are  such  as  work  with  iron  tools.  They  should 
all  be  true  and  trustworthy  in  their  office,  whether  they  work  by  the 
day  or  the  piece.  When  they  labor  by  the  day,  they  should  not  stand 
all  the  more  idle  that  they  may  multiply  the  days  at  their  work.  If 
thou  laborest  by  the  piece,  then  thou  shouldest  not  hasten  too  soon 
therefrom,  that  thou  mayest  be  rid  of  the  work  as  quickly  as  possi- 
ble, and  that  the  house  may  fall  down  in  a  year  or  two.  Thou 
shouldest  work  at  it  truly,  even  as  it  were  thy  own.  Thou  smith, 
thou  wilt  shoe  a  steed  with  a  shoe  that  is  naught ;  and  the  beast  will 
go  perchance  scarce  a  mile  thereon  when  it  is  already  broken,  and 

^"Adapted  from  a  thirteenth-century  sermon,  translated  in  Coulton, 
A  Mediaeval  Garner,  348-354- 


26  CURRENT  ECONOMIC  PROBLEMS 

the  horse  may  go  lame,  or  a  man  be  taken  prisoner,  or  lose  his  life. 
Thou  art  a  devil  and  an  apostate. 

The  third  are  such  as  are  busied  with  trade ;  we  cannot  do  with- 
out them.  They  bring  from  one  kingdom  to  another  what  is  good 
cheap  there,  and  whatever  is  good  cheap  beyond  the  sea  they  bring 
to  this  town,  and  whatever  is  good  cheap  here  they  carry  over  the 
sea.  Thou,  trader,  shouldst  trust  God  that  He  will  find  thee  a  liveli- 
hood with  true  winnings.  Yet  now  thou  swearest  so  loudly  how 
good  thy  wares  are,  and  what  profit  thou  givest  the  buyer  thereby ; 
more  than  ten  or  thirty  times  takest  thou  the  names  of  the  saints  in 
vain — God  and  all  His  saints,  for  wares  scarce  worth  five  shillings! 
That  which  is  worth  five  shillings  thou  sellest,  maybe,  sixpence 
higher  than  if  thou  .hadst  not  been  a  blasphemer  of  our  Lord,  for 
thou  swearest  loud  and  boldly:  "1  have  been  already  offered  far 
more  for  these  wares" :  and  that  is  a  lie.  And  if  thou  wilt  buy  any- 
thing from  simple  folk,  thou  turnest  all  thy  mind  to  see  how  thou 
mayst  get  it  from  him  without  money,  and  weavest  many  lies  be- 
fore his  face;  and  thou  biddest  thy  partner  go  to  the  fair  also,  and 
goest  then  a  while  away  and  sayest  to  thy  partner  what  thou  wilt 
give  the  man  for  his  wares,  and  biddest  him  come  and  offer  less. 
Then  the  simple  country  fellow  is  affrightened,  and  will  gladly  see 
thee  come  back.  "Of  a  truth,"  thou  sayest,  "by  all  the  saints,  no 
man  will  give  thefe  so  much  for  this  as  I !"  Yet  another  would  have 
given  more. 

The  fourth  are  such  as  sell  meat  and  drink,  which  no  man  can 
disregard.  Wherefore  it  is  all  the  more  needful  that  they  shouldst 
be  true  and  honest  therein ;  for  other  deceit  dealeth  only  with  earth- 
ly goods,  but  this  deceit  with  a  man's  body.  If  thou  offerst  measly 
or  rotten  flesh  that  thou'  hast  kept  so  long  until  it  be  corrupt,  then 
art  thou  guilty  perchance  of  one  man's  life,  perchance  of  ten.  Or 
if  thou  offerest  flesh  that  was  unwholesome  before  the  slaughter,  or 
unripe  of  age,  which  thou  knowest  well  and  yet  givest  it  for  sale, 
so  that  folk  eat  it  into  their  clean  souls  which  are  so  dear  a  treasure 
to  Almighty  God,  then  dost  thou  corrupt  the  noble  treasure  which 
God  hast  buried  in  every  man ;  thou  art  guilty  of  the  blood  of  these 
folk.  The  same  say  I  of  him  who  selleth  fish.  So  are  certain  inn- 
keepers and  cooks  in  the  town,  who  keep  their  sodden  flesh  too 
long,  whereof  a  guest  eateth  and  falleth  sick  thereafter  for  his  life 
long.  So  also  do  certain  others  betray  folk  with  corrupt  wine  or 
mouldy  beer,  unsodden  mead,  or  give  false  measure,  or  mix  water 
with  the  wine.  Certain  others,  again,  bake  rotten  corn  to  bread, 
wherebv  a  man  may  lightly  eat  his  own  death ;  and  they  salt  their 
bread  which  is  most  unwholesome. 


ANTECEDENTS  OP  INDUSTRIALISM  27 

The  fifth  folk  are  such  as  till  the  earth  for  wine  or  corn.  They 
should  live  truly  towards  their  lords  and  towards  their  fellows,  and 
among  each  other;  not  plough  one  over  the  other's  landmark,  nor 
trespass  nor  reap  beyond  the  mark,  nor  feed  their  cattle  to  another's 
harm,  nor  betray  their  fellows  to  the  lord.  Ye  lords,  ye  deal  some- 
times so  ill  with  your  poor  folk,  and  can  never  tax  them  too  high; 
ye  would  fain  ever  tax  them  higher  and  higher.  Thou  boor,  thou 
bringest  to  the  town  a  load  of  wood  that  is  all  full  of  crooked  billets 
beneath ;  so  sellest  thou  air  for  wood !  And  the  hay  thou  layest  so 
cunningly  on  the  wagon  that  no  man  can  profit  thereby ;  thou  art  a 
right  false  deceiver. 

The  sixth  folk  are  all  that  deal  with  medicine,  and  these  must  take 
great  head  against  untruth.  He  who  is  no  good  master  of  that  art, 
let  him  in  nowise  undertake  it,  or  folks'  blood  will  be  upon  his 
head.  Take  heed,  thou  doctor,  and  keep  thyself  from  this  as  thou 
lovest  the  kingdom  of  heaven.  We  have  murderers  enough  without 
thee  to  slay  honest  folk. 

So  are  some  men  deceivers  and  liars  like  the  craftsmen.  The 
shoemaker  sayeth,  "See,  there  are  two  most  excellent  soles,"  and  he 
hath  bunied  them  before  the  fire.  And  .the  baker  floods  his  dough 
with  yeast,  so  that  thou  hath  bought  mere  air  for  bread.  And  the 
huxter  pours  sometimes  beer  or  water  into  his  oil ;  and  the  butcher 
will  sell  calves'  flesh  at  times,  saying:  "It  is  three  weeks  old,"  and 
it  is  scarce  a  week  old.    • 

15.     The  Control  of  Industry  in  the  Gild  Period^^ 

BY  L.  F.  SALZMANN 

Broadly  speaking,  the  control  of  industry  may  be  said  to  be  either 
external,  by  parliamentary  or  municipal  legislation,  or  internal,  by 
means  of  craft  gilds.  These  two  sections  again  admit  of  subdivision 
according  as  their  objects  are  the  protection  of  the  consumer,  the 
employer,  or  the  workman.  Nor  can  we  entirely  ignore  legislation 
for  purpose  of  revenue— ^subsidies  and  customs. 

If  a  large  number  of  parliamentary  enactments  were  protective 
of  the  producer,  as  for  instance  the  prohibition  in  1463  of  the 
import  of  a  vast  variety  of  goods  from  silk  ribbands  to  dripping- 
pans,  and  from  razors  to  tennis  balls,  including  such  incompatibles 
as  playing-cards  and  sacring  bells,  yet  still  more  were  they  protective 
of  the  consumer.  For  one  thing,  of  course,  a  single  act  prohibiting 
certain  imports  might  protect  a  dozen  classes  of  manufacturers,  while 

^'Adapted  from  English  Industries  in  the  Middle  Ages,  200-237   (1913). 


28  CURRENT  ECONOMIC  PROBLEMS 

the  denunciation  of  one  particular  species  of  fraud  would  probably 
lead  ingenious  swindlers  to  invent  a  succession  of  others,  each 
requiring  a  separate  act  for  its  suppression.  Sentimental  admirers 
of  the  past  are  likely  to  imagine  that  the  mediaeval  workman  loved 
a  piece  of  good  work  for  its  own  sake  and  never  scamped  a  job. 
Nothing  could  be  farther  from  the  truth.  The  mediaeval  craftsman 
was  not  called  a  man  of  craft  for  nothing!  He  had  no  more  con- 
science than  a  plumber,  and  his  knowledge  of  ways  that  are  dark 
and  tricks  that  are  vain  was  extensive  and  peculiar.  The  subtle 
craft  of  the  London  bakers,  who,  while  making  up  their  customer's 
dough,  stole  a  large  portion  of  the  dough  under  their  customers'  eyes 
by  means  of  a  little  trap-door  in  the  kneading  board  and  a  boy  sit- 
ting under  the  counter,  was  exceptional  only  in  its  ingenuity.  Cloth 
was  stretched  and  strained  to  the  utmost  and  cunningly  folded  to 
hide  defects,  or  a  length  of  bad  cloth  would  be  joined  on  to  a  length 
of  superior  quality;  inferior  leather  was  faked  up  to  look  like  the 
best,  and  sold  at  night  to  the  unwary ;  pots  and  kettles  were  made  of 
bad  metal  which  melted  when  put  on  the  fire,  and  everything  that 
could  be  weighed  or  measured  was  sold  by  false  measure. 

From  the  consumer's  point  of  view  the  regulation  of  prices  was 
perhaps  the  most  important  problem.  The  price  of  raw  material 
was  too  much  dependent  upon  supply  and  demand  to  admit  of  much 
regulation.  The  local  authorities,  civic  and  manorial,  took  constant 
measures  to  prevent  the  artificial  enhancement  of  what  we  may  call 
raw  foodstuffs,  corn,  fish,  and  meat,  the  "regrator  and  forestaller," 
that  is  to  say,  the  middleman  who  intercepted  supplies  before  they 
reached  the  market  and  forced  prices  up  for  his  own  sole  benefit, 
being  universally  regarded  as  a  miscreant.  The  economists  of  that 
period  had  not  grasped  the  fact  that  the  cleverness  shown  in  buying 
an  article  cheap  and  selling  the  same  thing  without  any  further 
expenditure  of  labor,  dear,  if  done  on  a  sufficiently  large  scale,  justi- 
fies the  bestowal  of  the  honor  of  knighthood  or  a  peerage.  In  the 
case  of  manufactured  foodstuffs,  such  as  bread  and  ale,  the  price  was 
automatically  fixed  by  the  price  of  the  raw  material,  and  in  general 
prices  of  manufactures  were  regulated  by  the  cost  of  the  materials. 
The  principle  that  the  craftsman  should  be  content  with  a  reasonable 
profit  and  not  turn  the  casual  needs  of  his  neighbors  to  his  own  bene- 
fit is  constantly  brought  out  in  local  regulations. 

The  question  of  prices,  which  were  thus  so  largely  composed  of  a 
varying  sum  for  material,  and  a  fixed  sum  for  workmanship,  is 
very  intimately  connected  with  the  question  of  wages.    The  mediaeval 


ANTECEDENTS  OF  INDUSTRIALISM  2Q 

economist  seems  to  have  accepted  the  Riiskinian  theory  that  all  men 
engaged  in  a  particular  branch  of  trade  should  be  paid  equal  wages. 
There  were,  of  course,  grades  in  each  profession,  as  master  or  fore- 
man, workman,  and  assistant  or  common  laborer,  but  within  each 
grade  the  rate  of  payment  was  fixed.  Wages  were  at  all  times  paid 
on  the  two  systems  of  piece-work  and  time,  and  the  hours  were,  as 
a  rule,  long.  For  the  building  trade  at  Beverley  in  the  fifteenth  cen- 
turj'  work  began  in  summer  at  4  :oo  a.  m.  and  continued  until  7  :oo 
p.  M.;  at  6:00  A.  M.  there  was  a  quarter  of  an  hour's  interval  for 
refreshment,  at  8  :oo,  half  an  hour  for  breakfast,  at  11:00  an  hour 
and  a  half  to  dine  and  sleep,  and  at  3  :oo  half  an  hour  for  further 
refreshment.  During  the  winter  months  the  builders  worked  from 
dawn  till  dusk,  with  half  an  hour  for  breakfast  at  9:00  o'clock,  an 
hour  for  dinner  at  noon,  and  a  quarter  of  an  hour's  interval  at  3  too. 
Wages,  of  course,  when  paid  by  the  day,  varied  in  winter  and  sum- 
mer. But,  against  the  long  hours,  we  have  to  set  off  the  comparative 
frequency  of  holidays. 

For  the  protection  of  the  consumer  a  very  thorough  system  of 
search  or  inspection  was  established.  The  search  of  weights  and 
measures,  provisions,  cloth,  and  tanned  leather  usually  belonged  to 
the  mayor  or  equivalent  borough  officer,  or  in  country  districts  to  the 
manorial  lord,  but  usually  with  other  manufactures,  and  very  often 
in  the  case  of  cloth  and  leather,  the  mayor  deputed  the  duty  of 
search  to  members  of  the  craft  gilds  elected  and  sworn  for  that  pur- 
pose. They  could  inspect  the  wares  either  in  the  workshops  or 
when  they  were  exposed  for  sale,  and  seize  any  badly  made  articles. 
The  forfeited  goods  were  either  burnt  or  given  to  the  poor,  and  the 
offending  craftsman  fined,  set  in  the  pillory,  or,  if  an  old  offender, 
banished  from  the  town.  To  facilitate  tracing  the  responsibility  for 
bad  work,  weavers,  fullers,  hatters,  metal-workers,  tile-makers,  and 
other  craftsmen,  including  bakers,  were  ordered  to  put  their  private 
trademarks  on  their  wares.  This  process  must  have  been  much  sim- 
plified by  the  custom  so  prevalent  of  segregating  or  localizing  the 
trades,  so  that  the  goldsmiths  dwelt  in  one  quarter,  the  shoemakers 
in  another,  etc. 

As  the  trades  were  kept  each  to  its  own  district,  so  was  the 
craftsman  restricted  to  his  own  trade.  By  a  law  issued  in  1364  artif- 
icers were  obliged  to  keep  to  one  "mysterj'"  or  craft,  an  exception 
being  made  in  favor  of  women  acting  as  brewers,  bakers,  carders, 
spinners,  and  workers  of  wool  and  linen  and  silk — the  versatility  of 
woman,  the  "eternal  amateur,"  being  thus  recognized  some  five  cen- 
turies and  a  half  before  Mr.  Chesterton  rediscovered  it.     Later 


30  CURRENT  ECONOMIC  PROBLEMS 

statutes  forbade  shoemakers,  tanners,  and  curriers  to  infringe  on 
each  other's  province.  The  general  tendency  was  to  keep  trades, 
and  more  especially  the  allied  trades,  separate,  in  order  presumably 
to  avoid  the  growth  of  "combines"  and  monopolies.  For  this  rea- 
son fishmongers  and  fishermen  were  forbidden  to  enter  into  partner- 
ship in  London,  because  the  dealers,  knowing  the  needs  of  the  city, 
would  be  able  to  manipulate  supplies  and  keep  up  prices. 

How  far  the  desire  to  restrict  output  was  at  the  bottom  of  regu- 
lations forbidding  the  employment  of  more  than  a  strictly  limited 
number  of  apprentices  and  journeymen,  and  how  far  such  prohibi- 
tions were  inspired  by  fear  of  the  monopolization  of  labor  by  capi- 
talists it  is  difficult  to  say.  Probably  the  dread  of  the  capitalist  was 
the  chief  incentive  for  such  regulations,  which  are  very  numerous. 
The  same  principle  of  fair  play  between  employers  led  to  the  ordain- 
ing of  heavy  penalties  for  taking  away  another  man's  servant,  )v 
employing  any  journeyman  who  had  not  fulfilled  his  engagement 
with  his  previous  master,  and  to  the  strict  prohibition  of  paying  more 
than  the  fixed  maximum  wages.  This  last  provision  was  sometimes 
got  over  by  the  master's  wife  giving  his  servants  extra  gratuities  and 
gifts.  So  also  the  use  of  the  cheap  labor  of  women  was  as  a  rule 
regarded  with  disfavor.  The  fullers  of  lancoln  were  forbidden  to 
work  with  any  woman  who  was  not  the  wife  or  maid  of  a  master, 
and  the  "bracers"  or  makers  of  braces,  of  Ivondon,  in  1355,  laid 
down  "t^at  no  one  shall  be  so  daring  as  to  set  any  woman  to  work 
in  his  trade,  other  than  his  wedded  wife  or  his  daughter."  Of  child 
labor  we  hear  very  little,  one  of  the  few  notices  being  an  order  on 
the  children's  behalf  made,  suitably  enough,  by  Richard  Whittington, 
in  1398,  that  whereas  some  "hurlers"  (makers  of  fur  caps)  send 
their  apprentices  and  journeymen  and  children  of  tender  age  down 
to  the  Thames  and  other  exposed  places,  amid  horrible  tempests, 
frosts,  and  snows,  to  scour  caps,  to  the  very  great  scandal  of  this 
city,  this  practice  is  to  cease  at  once. 

Too  much  attention  must  not  be  given  to  the  quarrelsome  side  of 
the  gilds,  for  they  were  essentially  friendly  societies  for  mutual  assis- 
tance. One  of  the  rules  of  the  London  leather-dressers  was  that  if 
a  member  should  have  more  work  than  he  could  •  complete  and  the 
work  was  in  danger  of  being  lost,  the  other  members  should  help 
him.  A  still  more  essential  feature  of  the  gilds  was  their  grant  of 
assistance  to  members  who  had  fallen  ill  or  become  impoverished 
through  no  fault  of  their  own.  Nor  did  their  benevolence  end  with 
the  poor  craftsman's  death,  for  they  made  an  allowance  to  his  widow 
and  celebrated  masses  for  the  repose  of  his  soul. 


ANTECEDENTS  OF  INDUSTRIALISM  %i 

E.     MEDIEVAL  ECONOMIC  THEORY 
1 6.     The  Gospel  of  Stewardship^* 

BY  SAINT  THOMAS  AQUINAS 

Exterior  goods  have  the  character  of  things  useful  to  an  end. 
Hence  human  goodness  in  the  matter  of  these  goods  must  consist 
in  the  observance  of  a  certain  measure  as  is  done  by  a  man  seeking 
to  have  exterior  riches  in  so  far  as  they  are  necessary  to  his  life 
according  to  his  rank  and  condition.  x\nd,  therefore,  sin  consists  in 
exceeding  this  measure,  and  trying  to  acquire  or  retain  riches  beyond 
the  due  limit. 

Covetousness  may  involve  immoderation  in  two  ways :  in  one  way 
immediately  as  to  the  receiving  or  keeping  of  them,  when  one 
acquires  or  keeps  beyond  the  due  amount;  and  in  this  respect  it  is 
directly  a  sin  against  one's  neighbor,  because  in  exterior  riches  one 
cannot  have  superabundance  without  another  being  in  want,  since 
temporal  goods  cannot  be  simultaneously  possessed  by  many.  The 
other  way  is  in  ulterior  affections,  in  immoderate  love,  or  desire  of, 
or  delight  in,  riches.  In  this  way  it  is  a  sin  of  man  against  himself 
by  the  disordering  of  his  affection.  It  is  also  a  sin  against  God  by 
the  despising  of  eternal  good  for  temporal. 

The  Philosopher  says :  "It  belongs  to  the  magnanimous  man  to 
want  nothing  or  hardly  anything."  This,  however,  must  be  under- 
stood in  human  measure,  for  it  is  beyond  the  condition  of  man  to 
have  no  wants  at  all.  For  every  man  needs  first  of  all  the  divine 
assistance,  and  secondly  also  human  assistance,  for  man  is  naturally 
a  social  animal,  not  being  self-sufficient  for  the  purposes  of  life. 

Magnanimity  regards  two  objects,  honor  as  its  matter,  and  some 
good  deed  in  view  as  its  end.  Goods  of  fortune  co-operate  to  both 
these  objects.  For  honor  is  paid  to  the  virtuous,  not  by  the  wise 
only,  but  by  the  multitude.  Now  the  multitude  make  most  account 
of  the  external  goods  of  fortune;  consequently  greatest  honor  is 
paid  by  them  to  those  who  have  these  things.  In  like  manner  goods 
of  fortune  serve  as  instruments  to  acts  of  virtue,  because  by  riches 
there  is  opportunity  for  action.  Clearly  the  goods  of  fortune  con- 
tribute to  magnanimity.  Virtue  is  said  to  be  self-sufficient,  because 
it  can  exist  even  without  these  external  goods ;  nevertheless,  it 
needs  these  external  goods  to  have  more  of  a  free  hand  in  its 
working. 

"Adapted  from  Summa  Theologica,  Quaest,  CXVIII;  LXXIX,  art.  l, 
vi  et  viii   (1265-1274). 


32  CURRENT  ECONOMIC  PROBLEMS 

Solicitude  for  temporal  things  is  unlawful  if  we  seek  temporal 
things  as  our  final  goal.  Temporal  things  are  subject  to  man  that 
he  may  use  them  for  his  necessity,  not  that  he  may  set  up  his  rest 
in  them,  or  be  idly  solicitous  about  them. 

17.     The  Usurer's  Fate'^ 

BY  CAESARIUS  OF  HEISTERBACH 

.In  the  days  when  Oliver  was  Master  of  Schools  at  Cologne  (as 
I  was  told  by  Brother  Bernhard,  who  was  then  Oliver's  colleague 
and  fellow-preacher),  there  was  a  certain  peasant  named  Gottschalk 
who  busied  himself  with  usury.  As  he  slept  one  night  beside  his 
wife,  he  heard  as  it  were  the  sound  of  a  mill-wheel  turning  in  his  own 
mill;  whereupon  he  cried  for  his  servant,  saying,  "Who  hath  let 
the  mill-wheel  loose  ?  Go  and  see  who  is  there."  The  servant  went 
and  came  back,  for  he  was  too  sore  afraid  to  go  farther.  "Who  is 
there?"  cried  the  master.  "Such  horror  fell  upon  me  at  the  mill- 
door,"  answered  the  fellow,  "that  I  must  perforce  turn  back." 
"Well !"  cried  he,  "even  though  it  be  the  devil,  1  will  go  and  see."  So, 
naked  as  he  was,  but  for  a  cloak  which  he  threw  over  his  shoulders, 
he  opened  the  mill-door  and  looked  in,  when  a  sight  of  horror  met 
his  eyes.  There  stood  t  .vo  coal-black  horses,  and  by  their  side  an  ill- 
favored  man  as  black  as  they,  who  cried,  "Quick !  mount  the  horse, 
for  he  is  brought  for  thee."  When,  pale  and  trembling,  he  hesitated 
to  obey,  the  devil  cried  again,  "Why  tarriest  thou?  Cast  aside  thy 
cloak  and  come."  No  longer  able  to  resist,  he  cast  off  his  cloak, 
entered  the  mill,  and  mounted  the  horse — or  rather  the  devil.  The 
Fiend  himself  mounted  another;  and,  side  by  side,  they  swept  in 
breathless  haste  from  one  place  of  torture  to  another,  wherein  the 
wretched  man  saw  his  father  and  mother  in  miserable  torments. 
Inhere  also  he  saw  a  certain  knight  lately  died  seated  on  a  mad  cow 
with  his  face  toward  her  tail  and  his  back  to  her  horns;  the  beast 
rushed  to  and  fro,  goring  his  back  every  moment  so  that  the  blood 
gushed  out.  To  him  the  usurer  said,  "Why  suffer  you  this  pain?" 
"This  cow,"  replied  the  knight,  "I  tore  mercilessly  from  a  certain 
widow;  wherefore,  I  must  now  endure  this  merciless  punishment." 
Moreover,  there  he  was  shown  a  burning  fiery  chair,  wherein  could 
be  no  rest,  but  torment  and  interminable  pain  to  him  who  sat  there. 
And  it  was  said,  "Now  shalt  thou  return  to  thy  own  house,  and  thou 
shalt  have  thy  reward  in  this  chair."  The  Fiend  brought  him  back 
and  laid  him  in  the  mill,  half-dead.    Here  he  was  found  by  his  wife 

"Adapted  from  Dialogus  Miraculorum,  I,  70.  Translation  in  Coultoa 
A  Mediaeval  Garner,  212-215  (About  1250). 


ANTECEDENTS  OF  INDUSTRIALISM  33 

and  family,  who  brought  him  to  bed,  and  asked  where  he  had  been. 
"I  have  been  to  hell,"  he  answered,  "where  1  saw  such  and  such  tor- 
tures." The  priest  was  called,  who  warned  him  to  repent  of  his  sins, 
saying  that  none  should  despair  of  God's  mercy.  He  answered,  "I 
cannot  confess.  My  seat  is  made  ready;  after  the  third  day  I  mu.st 
come  thither,  and  there  must  I  receive  the  reward  of  my  deeds." 
And  thus  unrepentant,  unconfessed,  and  unanointed  he  died  on  the 
third  day  and  found  his  grave  in  hell.  It  is  scarce  three  years  since 
these  things  came  to  pass.   . 

18.     Usury  Versus  the  Boycott^' 

If  any  of  those  who  are  setting  out  are  bound  by  oath  to  pay  \ 
interest,  we  command  that  their  creditors  shall  be  compelled  by  the 
same  means  to  release  them  from  their  oaths  and  to  desist  from  the 
exaction  of  interest.  But  if  any  creditor  shall  compel  them  to  pay 
interest,  we  order  that  he  shall  be  forced,  by  a  similar  punishment,  to 
pay  it  back. 

We  command,  however,  that  the  Jews  shall  be  compelled  by  the 
secular  power  to  remit  interest.  Until  they  remit  it,  all  faithful 
Christians  shall,  under  penalty  of  excommunication,  refrain  from 
every  species  of  intercourse  with  them.  For  those,  moreover,  who  are 
unable  at  present  to  pay  their  debts  to  the  Jews,  the  secular  princes 
shall  provide  by  a  useful  delay,  so  that  after  they  begin  their  journey 
they  shall  suffer  no  inconvenience  from  interest.  The  Jews  shall 
be  compelled,  after  deducting  the  necessary  expenses,  to  count  the 
income  which  they  receive  in  the  meanwhile  from  the  mortgaged 
property  toward  the  payment  of  the  principal ;  since  a  favor  of  this 
kind,  which  defers  the  payment  and  does  not  cancel  the  obligation, 
docs  not  seem  to  cause  great  loss. 

19.     The  Characteristics  of  Mercantilist  Doctrine*' 

BY  JOHN  KELLS  INGRAM 

The  Mercantile  doctrine,  stated  in  its  most  extreme  form,  makes  • 
wealth  and  money  identical,  and  regards  it  therefore  as  the  great 
object  of  the  community  so  to  conduct  its  dealings  with  other  na- 
tions as  to  attract  to  itself  the  largest  possible  share  of  the  precious 
metals.  Each  country  must  seek  to  export  the  utmost  possible  quan- 
tity of  its  own  manufactures,  and  to  import  as  little  as  possible  of 

^'Adapted  from  Mansi,  Conciliorum  collectio,  XXXII,  1057.    This  is  an 
enumeration  of  the  privileges  granted  the  Crusaders  by  Innocent  III  (1215). 

"Adapted  from  A  History  of  Political  Economy,  37-40  (1887). 


34  CURRENT  ECONOMIC  PROBLEMS 

those  of  other  countries,  receiving  the  difference  of  the  two  values 
in  gold  and  silver.  This  difference  is  called  the  balance  of  trade, 
and  the  balance  is  favorable  when  more  money  is  received  than  is 
paid.  Governments  must  resort  to  all  available  expedients  for  the 
purpose  of  securing  such  a  balance. 

But  this  statement  of  the  doctrine  does  not  represent  correctly 
the  views  of  all  belonging  to  the  Mercantilist  school.  Many  of  that 
school  were  much  too  clear-sighted  to  entertain  the  belief  that  wealth 
consists  exclusively  in  gold  and  silver. .  The  mercantilists  may  be 
best  described  by  a  set  of  theoretical  tendencies,  commonly  found  in 
combination,  though  severally  prevailing  in  different  degrees  in 
different  minds.  These  may  be  enumerated  as  follows: — (i)  To- 
wards over-estimating  the  importance  of  possessing  a  large  amount 
of  the  precious  metals;  (2)  towards  an  undue  exaltation  (a)  of 
foreign  trade  over  domestic,  and  (b)  of  the  industry  which  works 
up  materials  over  the  industry  which  provides  them;  (3)  towards 
attaching  too  high  a  value  to  a  dense  population  as  an  element  of 
national  strength ;  and,  (4)  towards  invoking  the  action  of  the 
state  in  furthering  artificially  the  attainment  of  the  several  ends 
thus  proposed. 

If  we  consider  the  contemporary  position  of  Western  Europe, 
we  shall  have  no  difficulty  in  understanding  how  these  tendencies 
would  arise.  The  discoveries  in  the  New  World  had  led  to  a  large 
development  of  the  European  currencies.  A  new  "money  economy" 
had  arisen.  The  mercantilists  saw  that  money  was  in  universal 
demand,  and  that  it  put  in  the  hands  of  its  possessor  the  power  of 
acquiring  all  other  commodities.  The  period,  again,  was  marked  by 
the  formation  of  great  states,  with  powerful  Governments  at  their 
head.  These  Governments  required  men  and  moftey  for  the  main- 
tenance of  permanent  armies  and  for  court  expenses.  Taxation 
grew  with  the  demands  of  the  monarchies.  Statesmen  saw  that  for 
their  own  political  ends  industry  must  flourish.  But  manufactures, 
because  they  made  possible  a  denser  population  and  a  larger  total 
volume  of  exports  than  agriculture,  became  the  object  of  special 
Governmental  favor  and  patronage.  The  growth  of  manufactures 
reacted  on  commerce,  to  which  a  new  and  mighty  arena  had  been 
opened  by  the  establishment  of  colonies.  The  aim  of  statesmen  was 
to  make  the  colonial  trade  a  new  source  of  public  revenue.  Working 
for  their  own  power,  the  nations  entered  into  a  competitive  struggle 
in  the  economic  field. 

A  national  economic  interest  came  to  exist,  of  which  the  Gov- 
ernment made  itself  the  representative  head.  States  became  a 
sort  of  artificial  hothouses   for  the   rearing  of   urban   industries. 


ANTECEDENTS  OF  INDUSTRIALISM  35 

Production  was  subjected  to  systematic  regulation  with  the  object 
of  securing  the  goodness  and  the  cheapness  of  the  exported 
articles,  and  so  maintaining  the  place  of  the  nation  in  foreign 
markets.  The  industrial  control  was  exercised,  in  part  directly  by 
the  state,  but  largely  through  privileged  corporations.  High  duties 
on  imports  were  resorted  to  in  the  interests  of  national  production. 
Commercial  treaties  aimed  at  excluding  the  competition  of  other 
nations  in  foreign  markets  and  the  exclusion  of  foreign  goods,  other 
than  raw  materials,  from  the  domestic  market.  The  colonies  were 
prohibited  from  trading  with  European  nations  other  than  the  par- 
ent country.  The  mercantile  doctrine  was  essentially  the  theoretical 
counterpart  of  the  practical  activities  of  the  times.  Governments 
were  led  to  it  by  the  force  of  outward  circumstance. 

We  must  pronounce  the  universal  enthusiasm  of  this  period  to 
have  been  essentially  just,  as  leading  the  nations  into  the  main  ave- 
nues of  general  social  development.  The  organization  of  agricul- 
ture could  not  at  that  time  make  any  marked  progress,  for  it  was 
still  in  the  hands  of  the  feudal  class.  The  industry  of  the  towns 
had  to  precede  that  of  the  country.  And  it  is  plain  that  in  the  life 
of  the  manufacturing  proletariat  a  systematic  discipline  could  first 
be  applied,  to  be  afterwards  extended  to  the  rural  populations. 
Technical  skill  must  have  been  promoted  by  the  encouragement  of 
industry  and  commerce.  New  forms  of  national  production  were 
fostered  by  attracting  workingmen  from  other  countries,  and  by 
lightening  the  burden  of  taxation  on  struggling  industries.  Com- 
munication and  transport  were  rapidly  improved  with  a  view  to 
facilitate  traffic.  And,  not  the  least  important,  the  social  dignity 
of  the  industrial  professions  was  enhanced. 


II 

THE  INDUSTRIAL  REVOLUTION 

Our  historical  sketch  requires  for  its  completion  a  study  of  that  later 
aspect  of  social  development  which  we  so  often  and  so  strangely  call  the 
"Industrial  Revolution."  This  movement  has  done  far  more  than  shower  upon 
us  a  series  of  "great  inventions"  or  bless  mankind  with  a  new  technique. 
Appearing  gradually  and  working  indirectly,  as  well  as  directly,  it  has  affected 
our  whole  world  of  thought,  of  action,  and  of  institutions;  it  has  modified 
our  economics,  our  politics,  our  ethics,  and  even  our  religion ;  it  has  changed 
in  nature,  number,  and  form  our  baffling  problems ;  it  has  written  itself  large 
in  our  culture.  In  view  of  its  many-sidedness  and  the  gradual  way  in  which 
it  has  effected  and  is  still  effecting  its  changes,  it  seems  amiss  either  to  call 
it  "industrial"  or  to  refer  to  it  as  a  "revolution." 

We  look  in  vain  for  its  beginnings.  We  know  that  early  mediaevalism 
could  have  given  us  nothing  which,  even  erroneously,  could  be  called  an 
"industrial  revolution."  Before  it  could  appear  the  mediaeval  scheme  of 
values  had  to  be  transformed.  Desires  for  earthly  things  had  to  be  freed 
from  their  unethical  taint;  a  wholesome  respect  for  the  world  had  to  be 
built  up;  man  had  to  acquire  greater  reverence  for  his  own  powers  and  func- 
tions ;  people  had  to  learn  to  conform  to  the  things  of  this  world  if  they 
would  transform  it.  This  change  in  the  attitude  toward  life  and  its  prob- 
lems was  intimately  associated  with  several  other  lines  of  development. 
There  appeared  a  new  interest  in  nature  as  nature,  a  new  philosophy,  a  new 
mathematics,  and  a  new  physics.  These  laid  the  foundation  of  the  new 
technique.  Many  discoveries  of  new  lands  were  made,  adding  tremendous 
resources  calling  for  utilization.  There  was  brought  to  Europe  gold  alike 
serviceable  for  the  furtherance  of  the  new  money  economy  and  the  more 
rapid  accumulation  of  capital.  Colonial  ventures  led  to  an  extension  of  the 
market  and  a  great  increase  in  the  size  of  the  industrial  unit.  This  necessi- 
tated a  reorganization  of  the  "factory"  and  a  more  extensive  use  of  the 
principle  of  the  division  of  labor.  The  last  produced  a  minute  specialization 
which  both  served  to  create  an  incentive  for  the  invention  of  new  machines 
and  furnished  an  opportunity  for  their  use.  Together  with  accumulated  cap- 
ital and  the  necessary  scientific  knowledge  this  new  organization  led  to  the 
new  technique.  Even  this  is  not  the  whole  story;  for  in  England  the  move- 
ment was  hastened  by  conditions  peculiar  to  the  country.  The  indented  coast- 
line, by  cheapening  transportation  and  enlarging  the  market,  must  have  been 
a  factor  of  prominence.  It  has  been  suggested,  too,  that  an  institution,  seem- 
ingly as  extraneous  as  primogeniture,  played  its  part  by  forcing  into  mercan- 
tile pursuits  those  whose  veins  contained  the  adventurous  blood  of  nobility. 

The  course  of  the  "revolution"  has  been  as  comprehensive  as  its  ante- 
cedents. The  changes  in  technique  are  most  clearly  appreciated.  Even  here 
the  tendency  toward  a  "machine-process"  embracing  a  large  part  of  the 
industrial  system  is  generally  overlooked,  as  is  also  the  seemingly  antagon- 
istic fact  that  up  to  the  present  the  conquest  of  the  older  system  by  the  ma- 
chine has  been  partial  and  incomplete.  On  the  economic  side,  the  increasing 
importance  of  capital,  the  rise  of  the  "factory  system,"  the  disappearance 
of  "domestic  industry,"  the  trend  toward  large-scale  production,  the  separa- 
tion of  the  laborer  from  the  "tools  of  his  trade,"  and  increasing  class  differ- 
entiation based  upon  differences  in  industrial  functions  are  most  clearly  seen. 
These  aspects  of  the  movement  raise  the  questions  of  artificially  controlling 
the  tendencies  inherent  in  the  development  of  the  machine-system,  the  deter- 

36 


THE  INDUSTRIAL  REVOLUTION  37 

mination  of  the  size  of  the  industrial  entity,  the  social  control  of  large  aggre- 
gates of  wealth  such  as  railroads  and  capitalistic  monopolies,  the  elimination 
of  economic  insecurity  which  alike  attends  labor  and  capital,  the  equities  of 
the  distribution  of  wealth,  and  the  urban  enigmas  of  overcrowding,  housing, 
sanitation,  vice,  and  poverty.  They  reveal,  too,  just  over  the  horizon  the 
more  ominous  questions  of  property,  inheritance,  and  the  reconstruction  of 
industrial  society. 

The  questions  reveal  but  a  single  aspect  of  the  influences  of  the  Indus- 
trial Revolution.  Political,  ethical,  religious,  and  social  questions  have  all 
been  involved  in  the  general  transformation  of  life  and  values.  In  many 
cases  they  are  inseparably  connected  with  economic  problems.  For  instance, 
when  the  machine  took  over  the  work  of  the  home,  the  latter  became  a  new 
institution.  One  writer  insists  that  the  home,  and  woman  as  well  for  all  that, 
has  not  yet  adapted  herself  to  the  new  society.  We  all  complain  that  the 
"machine-process"  has  entered  our  colleges,  and  that  college  instruction  is 
being  "standardized"  and  college  graduates  "tagged."  We  all,  at  least  occa- 
sionally, complain  of  the  inability  of  law  and  religion  alike  to  adjust  them- 
selves to  Modern  Industrialism.  And  our  friends  in  ethics  tell  us  that  the 
newer  industrial  life  is  effecting  startling  changes  in  our  standards  of  social 
and  individual  ethics. 

And  are  we  sure  that  we  have  reached  the  end  of  the  "revolution"  ?  Most 
likely  we  are  in  a  second  stage  of  the  process  where  problems  are  vastly  diflFer- 
ent  from  those  met  in  the  first  stage  which  occupied  the  larger  part  of  the 
nineteenth  century.  Perhaps  there  will  be  a  third  stage  unlike  the  second. 
Qearly  the  end  of  the  new  technology  is  not  as  yet.  The  technique  first  intro- 
duced has  not  as  yet  produced  its  full  complement  of  social  results.  Quite 
as  important,  the  new  technique  is  being  rapidly  extended  over  a  wider  and 
wider  area,  constantly  affecting  the  fortunes  of  people  less  and  less  adapted 
to  it.  Its  extension  preserves  a  frontier  where  machine-culture  is  constantly 
pushing  back  a  civilization  founded  on  a  less  complex  technique.  The  reac- 
tion upon  our  system  is  fraught  with  grave  consequences. 

A.     THE  ANTECEDENTS  OF  THE  REVOLUTION 
20.     The  Characteristics  of  the  EngHsh  People* 

BY  ALFRED   MARSHALL 

England's  geographical  position  caused  her  to  be  peopled  by  the 
strongest  members  of  the  strongest  races  of  northern  Europe;  a 
process  of  natural  selection  brought  to  her  shores  those  members 
of  each  successive  migrator^'  wave  who  were  most  daring  and  self- 
reliant.  Her  climate  is  better  adapted  to  sustain  energy  than  any 
other  in  the  northern  hemisphere.  She  is  divided  by  no  high  hills, 
and  no  part  of  her  territory  is  more  than  twenty  miles  from  naviga- 
ble water.  The  strength  and  wise  policy  of  the  early  kings  pre- 
vented artificial  barriers  from  being  raised  by  local  magnates. 

The  custom  of  primogeniture  inclined  the  younger  sons  of  noble 
families  to  seek  their  own  fortunes ;  and  having  no  special  caste 
privileges  they  mixed  readily  with  the  common  people.  The  fusion 
of  differeiit  ranks  tended  to  make  politics  business-like ;  while  it 

^Adapted  from  Principles  of  Economics,  4th  ed.,  32-35  (1895), 


38  CURRENT  ECONOMIC  PROBLEMS 

warmed  the  veins  of  business  adventure  with  the  generous  daring 
and  romantic  aspirations  of  noble  blood.  Resolute  in  resistance  to 
tyranny,  they  have  submitted  to  authority  justified  by  reason.  They 
have  known  how  to  combine  order  and  freedom.  They  alone  have 
united  a  thorough  reverence  of  the  past  with  a  power  of  living  for 
the  future. 

The  English  yeoman  archer  was  the  forerunner  of  the  English 
artisan.  He  had  the  same  pride  in  the  superiority  of  his  food  and 
his  physique  over  those  of  his  continental  rivals ;  he  had  the  same 
indomitable  perseverance  in  acquiring  perfect  control  over  the  use 
of  his  hands,  the  same  independence  and  the  same  power  of  self- 
control  and  of  rising  to  emergencies. 

But  the  industrial  facilities  of  the  Englishmen  remained  latent 
for  a  long  time.  They  had  not  inherited  much  acquaintance  with 
nor  much  care  for  the  comforts  and  luxuries  of  civilization.  In 
manufactures  they  lagged  behind  the  rest  of  Europe.  For  a  long 
tim.e  there  was  no  sign  on  the  surface  of  future  commerce.  They 
had  not  originally,  and  they  have  not  now,  the  special  liking  fot 
dealing  and  bargaining,  nor  for  the  more  abstract  side  of  financial 
business  which  is  found  among  Jews,  Italians,  and  Greeks.  Trade 
with  them  has  always  taken  the  form  of  action  rather  than  man- 
ouvering  and  speculative  combination.  Even  now  the  subtlest  spec- 
ulation on  the  London  Stock  Exchange  is  done  by  those  races  which 
have  inherited  the  same  aptitude  for  trading  that  the  English  have 
for  action.  The  latter  characteristic  has  impelled  the  English  into 
production,  into  discovery,  invention,  business  organization,  and  into 
navigation.  Their  commercial  activities  are  a  result  of  peculiar  con- 
ditions and  a  development  of  these  latter  activities. 

21.     English  Industry  on  the  Eve  of  the  Revolution^ 

BY  ARNOLD  TOYNBEE 

I  must  ask  you  to  transport  yourselves  in  imagination  to  Eng- 
land as  it  was  a  century  and  a  quarter  ago.  Then  the  farms  were 
small  and  the  method  of  cultivation  primitive.  The  old  system  of 
common  cultivation  was  still  to  be  seen  at  work  in  a  large  number 
of  parishes  in  the  Midland  counties.  Rotation  of  crops  was  only 
imperfectly  understood ;  the  practice  of  growing  winter  roots  and 
artificial  grasses  was  only  slowly  spreading.  "As  for  the  sheep," 
said  an  old  Norfolk  shepherd,  speaking  of  a  still  more  recent  period, 

"Adapted  from  "Industry  and  Democracy,"  in  Lectures  on  the  Industrial 
fievolution,  179-188  (1881). 


THE  INDUSTRIAL  REVOLUTION  39 

"they  hadn't  such  food  provided  for  them  as  they  have  now.  In 
winter  there  was  little  to  eat  except  what  God  Almighty  sent  for 
them,  and  when  the  snow  was  deep  on  the  ground  they  ate  the  ling 
or  died  off."  The  cotton  industry,  which  now  supports  more  than 
half  a  million  of  persons,  was  then  oppressed  by  Parliament  as  a 
possible  rival  to  older  industries,  and  was  too  insignificant  to  be 
mentioned  more  than  once,  and  then  incidentally,  by  Adam  Smith. 
The  iron  industry,  with  which  the  material  greatness  of  England 
has  during  the  present  century  been  so  conspicuously  associated,  was 
gradually  dying  out.  Much  of  the  ore  was  still  smelted  by  charcoal 
in  small  furnaces  blown  by  leather  bellows  worked  by  oxen.  Not 
cotton  and  iron,  but  wool  was  considered,  in  those  days,  the  great 
pillar  of  national  prosperity.  There  were  few  people  who  doubted 
but  that  the  ruin  of  England  would  follow  the  decay  of  this  cher- 
ished industry.  It  was  only  philosophers  like  Bishop  Berkeley,  who, 
going  very  deep  into  matters,  ventured  to  ask  whether  other  coun- 
tries had  not  flourished  without  the  woolen  trade. 

To  show  you  the  external  conditions  of  industrial  life  in  the 
middle  of  the  last  century,  I  cannot,  I  think,  do  better  than  give  a 
short  description  of  the  way  in  which  wool  was  manufactured  in 
the  neighbourhood  of  Leeds.  The  business  was  in  the  hands  of 
small  master-manufacturers  who  lived,  not  in  the  town,  but  in  home- 
steads in  the  fields,  and  rented  little  pasture-farms.  Every  master 
worked  with  his  own  hands,  and  nearly  all  the  processes  through 
which  the  wool  was  put — the  spinning,  the  weaving,  and  the  dyeing 
— were  carried  on  in  his  own  house.  Few  owned  more  than  three 
or  four  looms,  or  employed  more  than  eight  or  ten  people — men, 
women,  and  children.  This  method  of  carrying  on  the  trade  was 
called  the  domestic  system.  "What  I  mean,"  said  a  witness,  "by  the 
domestic  system  is  the  little  clothiers  living  in  villages  or  detached 
places,  with  all  their  comforts,  carrying  on  business  with  their  own 
capital ;  every  one  must  have  some  capital,  more  or  less,  to  carry 
on  his  trade,  and  they  are  in  some  degree  little  merchants  as  well 
as  manufacturers,  in  Yorkshire."  A  spinning-wheel  was  to  be 
found  in  every  cottage  and  farm-house  in  the  kingdom,  a  loom  in 
every  village. 

The  mention  of  this  fact  brings  me  to  another  point  in  the  eco- 
nomic history  of  this  period — the  extremely  narrow  circle  in  which 
trade  moved.  In  many  districts  the  farmers  and  labourers  used  few 
things  which  were  not  the  work  of  their  own  hands,  or  which  had 
not  been  manufactured  a  few  miles  from  their  homes.  The  poet 
Wordsworth's  account  of  the  farmers'  families  in  Westmoreland, 
who  grew  on  their  own  land  the  corn  with  which  they  were  fed. 


40  ^  CURRENT  ECONOMIC  PROBLEMS 

spun  in  their  own  homes  the  wool  with  which  they  were  clothed,  and 
supplied  the  rest  of  their  wants  by  the  sale  of  yarn  in  the  neighbor- 
ing market  town,  was  not  so  inapplicable  to  other  parts  of  England 
as  we  might  at  first  imagine.  If  the  inland  trade  was  thus  circum- 
scribed, we  shall  not  be  surprised  to  find  that  our  foreign  trade  was, 
compared  with  its  present  dimensions,  on  a  tiny  scale. 

Though  there  were  periods  of  keen  distress,  there  was  no  such 
thing  as  long-continued  wide-spread  depression  of  trade.  Over-pro- 
duction was  impossible  when  the  producer  lived  next  door  to  the 
consumer,  and  knew  his  wants  as  well  as  the  country  shoemaker 
of  today  knows  the  number  of  pairs  of  boots  that  are  wanted  in  his 
village.  And  when  foreign  trade  was  so  insignificant,  wars  and 
rumours  of  wars  could  exercise  but  little  influence  over  the  general 
circle  of  commerce. 

The  expense  of  carriage  was  enormous — it  cost  forty  shillings 
to  send  a  ton  of  coal  from  Manchester  to  Liverpool — and  it  was  as 
slow  as  it  was  expensive.  Adam  Smith  tells  us  that  it  took  a  broad- 
wheeled  wagon,  drawn  by  eight  horses,  and  attended  by  two  men, 
three  weeks  to  carry  four  tons  of  goods  from  London  to  Edinburgh. 
The  roads — even  the  main  roads — were  often  impassable.  A  famous 
traveller  describes  how  the  high  road  between  Preston  and  Wigan 
had,  even  in  summer,  ruts  four  feet  deep,  floating  with  mud ;  and 
in  many  parts  of  the  country  the  principal  means  of  communication 
were  tracks  used  by  pack-horses.  Was  it  not  natural  that,  shut  up 
within  such  narrow  confines,  unstimulated  by  wide  markets  and 
varied  intercourse,  manufactures  advanced  but  slowly  and  inven- 
tions were -rare?  Man's  life  moved  on  from  generation  to  genera- 
tion in  a  quiet  course  which  would  seem  to  us  a  dull,  unvarying 
routine. 

The  majority  of  employers  were  small  masters — manufacturers 
l&e  those  already  described,  who,  in  ideas  and  habits  of  life,  were 
little  removed  from  the  workmen,  out  of  whose  ranks  they  had 
risen,  and  to  whose  ranks  they  might  return  once  more.  There  were, 
of  course,  even  then  capitalist  employers,  but  on  a  small  scale;  nor 
was  their  attitude  to  their  workmen  very  different  from  that  of  the 
little  masters  in  the  same  trade.  Few  of  the  small  masters  of  whom 
I  have  spoken  did  not  work  with  their  own  hands;  and  it  was  the 
common  thing  for  them  to  teach  their  apprentices  the  trade.  Both 
the  apprentices,  for  whose  moral  education  he  was  responsible,  and 
the  journeymen  were  lodged  and  boarded  in  the  master's  house. 
Between  men  living  in  such  close  and  continuous  relations  the  bonds 
were  naturally  very  intimate.  Nor  were  these  bonds  loosened  when 
the  journeyman  married  and  lived  in  his  own  house.    The  master 


.roi 


THE  INDUSTRIAL  REVOLUTION  41 

knew  all  his  aflfairs,  his  particular  wants,  his  peculiarities,  his  re- 
sources, the  number  of  his  children,  as  well  as  he  did  before.  If  the 
weaver  was  sick,  the  master  lent  him  money ;  if  trade  was  slack  he 
kept  him  on  at  a  loss.  "Masters  and  men,"  said  an  employer,  "were 
in  general  so  joined  together  in  sentiment,  and,  if  I  may  be  permit- 
ted to  use  the  term,  in  love  to  each  other,  that  they  did  not  wish  to 
be  separated  if  they  could  help  it."  And  the  workmen  corroborated 
the  assertion.  "It  seldom  happens,"  said  a  weaver,  "that  the  small 
clothiers  change  their  men  except  in  case  of  sidcness  and  death." 
It  was  not  uncommon  for  a  woricman  to  be  employed  by  the  same 
master  for  forty  years ;  and  the  migration  of  labourers  in  search  of 
work  was  small  compared  with  w  hat  goes  on  in  the  present  day.  A 
workman  would  live  and  die  on  the  spot  where  he  was  bom,  and 
the  same  family  would  remain  for  generations  working  for  the 
same  employers  in  the  same  village.  Under  such  conditions  the  mas- 
ter busies  himself  with  the  welfare  of  the  workman,  and  the  educa- 
tion of  his  children ;  the  workman  eagerly  promotes  the  interests  of 
the  master,  and  watches  over  the  fortimes  of  the  house.  They  are 
not  two  families  but  one. 

There  is  yet  one  other  characteristic  of  industry  in  those  days 
which  remains  for  us  to  scrutinize.  This  is  the  network  of  restric- 
tions and  regulations  in  which  it  was  entangled  and  which  exercised 
an  important  influence  over  both  its  inner  and  its  outer  life.  Most 
conspicuous  were  the  combination  laws, — laws  which  made  it  illegal 
for  labourers  to  combine  to  raise  w  ages,  or  to  strike.  "We  have  no 
Acts  of  Parliament,"  says  Adam  Smith,  "against  combining  to  lower 
the  price  of  work,  but  many  agamst  combmmg  to  raise  it."  And  in 
another  passage  he  describes  a  strike  as  generally  ending,  "in  noth- 
ing but  the  punishment  or  ruin  of  the  ringleaders."  And  not  only 
was  combination  to  raise  wages  illegal,  but  emigration  from  parish 
to  parish  in  search  of  work  was  rendered  almost  impossible  by  the 
law.  These  laws,  which  cruelly  hindered  the  workman  in  his  efforts 
to  secure  a  livelihood,  were  bad ;  but  there  were  other  laws  directly 
affecting  the  position  of  the  workman  as  a  citizen  which  were  worse. 
I  select  one  example.  The  law  of  Master  and  Servant  made  breach 
of  contract  on  the  part  of  an  employer  a  civil  offence,  on  the  part  of 
the  labourer  a  crime. 

Except  as  a  member  of  a  mob,  the  labourer  had  not  a  shred  of 
jKDlitical  influence.  The  power  of  making  laws  was  concentrated 
in  the  hands  of  the  landowners,  the  great  merchant  princes,  and  a 
small  knot  of  capitalist-manufacturers  who  wielded  that  power  in 
the  interests  of  their  class,  rather  than  for  the  good  of  the  people. 
Nor  is  the  famous  assertion  of  the  great  economist  that,  whenever 


S 


42  CURRENT  ECONOMIC  PROBLEMS 

/ 

Parliament  attempted  to  regulate  differences  between  masters  and 

their  workmen,  its  counsellors  were  always  the  masters,  unsupported 
by  facts.  It  receives  lively  illustration  from  the  pen  of  a  pamph- 
leteer of  the  period,  who  remarics  wath  an  air  of  great  naturalness 
and  simplicity  that  "the  gentlemen  and  magistrates  ought  to  aid  and 
encourage  the  clothier  in  the  reduction  of  the  price  of  labour,  as  far 
as  is  consistent,  with  the  laws  of  humanity,  and  necessary  for  the 
preservation  of  foreign  trade."'  The  position  of  the  workman  was 
a  transitional  one.  He  halted  half-way  between  the  position  of  the 
serf  and  the  position  of  the  citizen ;  he  was  treated  with  kindness 
by  those  who  injured  him;  he  was  protected,  oppressed,  dependent. 


22.     Geographical  Discovery  and  the   Revolution' 

BY  WII^IvIAM  CUNNINGHAM 

In  the  latter  part  of  the  eighteenth  century  there  was  a  burst 
of  inventive  genius  in  Great  Britain.  Many  improvements  were 
rapidly  introduced,  and  the  useful  arts,  as  practised  from  time  im- 
memorial, were  revolutionised  in  a  few  years.  This  was  no  mere 
accident,  but  was  at  least  partly  due  to  the  fact  that  the  conditions 
of  economic  life  had  become  more  favourable  to  such  change  than 
they  had  ever  been  before.  The  age  of  geographical  discovery  had 
paved  the  way  for  the  age  of  invention ;  England  had  succeeded  in 
surpassing  each  of  the  rivals  who  during  a  century  and  a  half  had 
striven  with  her  for  the  commercial  supremacy  of  the  world ;  her 
predominance  afforded  the  English  inventors  of  the  eighteenth  cen- 
tury unexampled  opportunities  for  turning  their  talents  to  account. 

Holland  was  no  longer  the  carrier  of  the  world;  her  manufac- 
tures had  declined  in  importance.  In  France  over-centralization 
destroyed  the  initiative  of  the  people  and  injured  all  branches  of 
industry  and  agriculture.  English  shipping  had  increased,  and  dis- 
tant markets  for  national  wares  had  been  opened.  The  East  Indies 
were  willing  to  accept  unlimited  supplies  of  cotton  cloth ;  and  the 
continent  of  Europe  and  the  colonies  of  America  were  largely  de- 
pendent on  Great  Britain  for  woolen  goods ;  manufacturing  could 
be  conducted  on  a  larger  and  larger  scale  without  immediate  risk  of 
glutting  the  widespread  demand  by  overproduction.  So  long  as 
commerce  had  been  organised  as  an  intercivic  affair,  or  on  the  old 
regulated  lines  of  exclusive  privileges  in  limited  markets,   there 

'Adapted  from  An  Essay  on  Western  Civilization  in  Its  Economic 
Aspects.  II,  225-228  (1900), 


THE  INDUSTRIAL  REVOLUTION  43 

could  not  have  been  any  such  stimulus  to  the  invention  and  intro- 
duction of  machinery  as  the  world-wide  markets  naturally  afforded. 

But  more  than  this :  the  mines  of  the  New  World  and  the  suc- 
cessful commerce  with  the  East  had  given  England  the  material 
means  for  the  formation  of  large  amounts  of  capital,  which  were 
now  available  for  employment.  There  had  been  much  admirable 
ingenuity  among  seventeenth  century-  engineers  and  mechanics,  but 
they  were  hampered  by  want  of  capital;  their  projects  could  not  be 
carried  out.  In  the  eighteenth  century  London  had  become  the 
monetar}'  centre  of  the  world,  and  it  was  no  longer  impossible  to 
venture  on  the  long  and  costly  experiments  that  were  often  needed 
to  render  some  mechanical  improvement  a  financial  success.  We  are 
not  detracting  from  the  genius  of  Watt  or  Arkwright  if  we  say  that 
they  seized  and  made  the  most  .of  opportunities,  such  as  no  other 
men  had  ever  had  before.  Had  they  lived  under  the  conditions 
which  were  in  vogue  in  preceding  centuries,  both  as  to  demand  for 
goods  and  the  supply  of  capital,  these  great  inventors  could  only 
have  enjoyed  the  meagre  distinction  which  future  generations  accord 
to  men  who  were  in  advance  of  their  times. 

The  great  geographical  discoveries  were  the  result  of  long-con- 
tinued and  conscious  effort,  directed  to  a  clearly  understood  aim; 
great  expeditions  had  to  be  organised  to  sail  on  unknown  seas  and 
establish  friendly  relations  with  distant  potentates.  Explorers  were 
forced  to  wait  on  courtly  patronage  and  royal  initiative;  but  me- 
chanical invention  has  run  a  different  course.  The  coincidence  of 
the  two  phenomena,  a  world-wide  demand  and  a  large  supply  of 
capital,  enabled  humble  and  unknown  men  to  push  on  step  by  step; 
political  prestige  and  elaborate  organisation  were  not  so  essential 
as  in  schemes  for  colonization ;  mechanical  skill  and  personal  inge- 
nuity had  at  last  obtained  their  chance.  The  new  industrial  era. 
which  the  age  of  invention  brought  in  its  train,  has  offered  a  free 
field  and  given  the  greatest  rewards  to  individual  enterpnse.  It  is 
commonly  said  that  the  physical  advantage  of  England  in  the  pos- 
session of  enormous  supplies  of  coal  and  iron  side  by  side,  have 
enabled  her  to  out-distance  her  rivals,  not  only  in  commerce  but  in 
industry;  still,  the  proximity  and  quantity  of  coal  and  iron  do  not\ 
in  themselves  account  for  her  success  completely ;  in  the  case  of 
such  inventions  as  Arkwright's  they  do  not  account  for  it  at  all. 
The  favorable  conditions  which  English  manufacturers  enjoyed,  in 
the  eighteenth  century,  and  the  reliance  on  individual  enterprise 
which  had  been  traditional  in  Great  Britain,  were  not  unimportant 
factors  in  rendering  this  island  the  workshop  of  the  world. 


44  CURRENT  ECONOMIC  PROBLEMS 

B.     THE  NATURE  AND  SCOPE  OF  THE  REVOLUTION 
23.     Technology  and  the  Revolution* 

The  Industrial  Revolution  was  no  sudden  transformation  of  the 
structure  of  industry  and  the  organization  of  social  life.  It  is  an 
unfortunate  emphasis  upon  the  "great  inventions"  and  their  imme- 
diate consequences  which  has  caused  us  to  lose  sight  of  the  broad 
scope  and  the  varied  content  of  the  movement.  This  emphasis  has 
too  frequently  conveyed  the  impression  that  the  sudden  appearance 
upon  the  scene  of  industrial  action  of  several  very  wonderful  ma- 
chines, born  of  the  inventive  genius  of  the  great  men  of  old,  wrought 
a  great  change,  substituting  an  entirely  new  and  more  efficient  sys- 
tem for  the  archaic  one  which  had  done  service  before.  This  view 
commits  the  double  error  of  regarding  the  movement  as  industrial 
and  as  a  revolution. 

It  was  not  industrial;  for  its  antecedents  cannot,  any  more  than 
its  consequences,  be  pent  up  in  any  narrow  causal  formula  to  which 
the  term  industrial  can  be  properly. applied.  An  attempt  to  find  its 
beginning  forces  one  into  excursions  into  fields  as  complex  as  human 
life  itself.  Certainly  the  common-sense  scheme  of  social  values,  the 
estimates  placed  by  peoples  upon  their  institutions,  their  aspirations, 
and  their  instruments  cannot  be  excluded  from  the  catalogue  of  ante- 
cedents. The  change  in  such  a  scheme  was  one  of  the  most  potent 
of  the  factors  leading  to  this  great  movement.  Clearly  the  mediaeval 
scheme  of  values  would  have  inhibited  the  invention  of  the  steam- 
engine.  It  would  not  even  have  permitted  the  consideration  of  the 
problem  the  partial  answer  to  which  the  steam-engine  became.  For 
such  a  society  the  high  values  were  in  things  of  the  "other  world." 
To  it  nature  was  not  a  thing  worth  conquering;  if  it  had  been,  man 
was  impotent  to  effect  the  conquest.  Improvement  in  industrial 
technique  demanded  placing  a  higher  value  upon  life  in  this  world, 
upon  the  material  means  toward  its  fulness,  and  upon  man's  depen- 
dence upon  nature's  bounty  and  laws.  It  demanded,  too,  that  the 
individual  develop  confidence  in  the  soundness  of  his  worldly  desires 
and  in  his  capacity  to  do  things  worth  while.  When  an  adequate 
account  of  this  great  movement  is  written,  one  of  its  most  important 
chapters  will  trace  the  development  of  this  Jiew  scheme  of  values. 

But,  passing  over  the  larger  social  aspects  of  the  subject,  even 
industrially  the  movement  was  hardly  a  revolution.  This  is  evi- 
denced by  a  study  of  the  transition  from  the  craft  to  the  machine 
regime.     Under  the  former,  population  had  been  adjusted  to  the 

*Adapted  from  an  unpublished  article  entitled  "The  Place  of  Technique 
in  the  Industrial  Revolution." 


THE  INDUSTRIAL  REVOLUTION  45 

available  supply  of  natural  resources;  and  the  existing  technique 
had  adapted  itself  to  both.  In  fact  so  harmoniously  did  the  three 
fit  together  that  the  craft  technique  was  just  adequate  to  supply  the 
customar}'  wants  of  a  slowly  increasing  population  by  making  use 
of  the  whole  of  the  available  natural  resources.  In  view  of  its  ade- 
quacy, this  technique,  almost  perfect,  was  in  little  danger  of  being 
replaced. 

However,  the  gradual  revelation  of  the  natura.1  resources  of  the 
New  World,  or  the  "economic  discovery  of  America,"  created  an 
acute  technical  problem,  whose  solution  promised  alike  individual 
fortune  and  social  prosperity.  Its  significance  lies  in  the  fact  that 
it  disturbed  the  happy  harmony  between  population,  technique,  and 
natural  resources.  Resources  were  all  of  a  sudden  tremendously 
increased.  Being  potential  wealth,  they  promised  fortune  to  him  who 
could  turn  them  into  finished  commodities.  The  craft  technique, 
however,  was  incapable  of  handling  so  large  an  order.  At  best,  it 
could  but  leave  large  quantities  of  resources  untouched.  Yet  the 
almost  infinite  expansibility  of  htunan  wants,  particularly  in  view 
of  the  inability  of  population  mechanically  to  assume  a  given  size, 
demanded  that  the  largest  possible  quantity  of  raw  material  be  con- 
verted into  usable  goods.  Consequently  the__problem  of  finding  a 
new  and  adequate  technique  became  one  of  increasing  social  impor- 
tance during  the  seventeenth  and  eighteenth  centuries.  In  terms  of 
an  instinctive  and  semi-conscious  struggle  to  solve  this  problem  much 
of  the  intellectual  history  of  these  centuries  becomes  intelligible. 

Properly  speaking,,the  problemjncliided  two  closely  related  prob- 
lems^  that  of  technique  proper^  and  that  of  industrial  organization. 
The  first  of  these  presented  grave  difficulties.  The  craft  technique 
could,  of  course,  suggest,  and  parts  of  it  could  even  be  taken  over. 
But,  for  all  that,  its  development  was  complete;  its  primary  basis 
was  individual  skill ;  and  certainly  in  view  of  its  present  high  develop- 
ment, it  was  impossible  to  establish  a  more  adequate  technique  by 
a  further  development  of  human  dexterity.  Furthermore,  the  devel- 
opment of  skill  pointed  to  delicacy,  quality,  refinement.  Since  these 
were  not  what  was  wanted,  the  new  technique  had  to  start  from  new 
beginnings.  Its  demands  were  cruder  than  those  made  upon  the 
older  system.  Its  problem  was  to  find  a  means  of  handling  immense 
quantities  of  raw  material  in  the  rough,  and  of  turning  out  large 
quantities  of  crude  products.  It  involved,  too,  handling  these  masses 
rapidly,  which  necessitated  finding  a  source  of  power  other  than 
human  labor.  \The  first  requirement  imposed  the  necessity  of  the 
exact  handling  of  materials ;  the  second  involved  dgvising  a  scheme 
for  throwing  the  burden  of  the  work  upon  natui^  (The  first  imposed 


46  CURRENT  ECONOMIC  PROBLEMS 

an  understanding  of  the  laws  of  quantity;  this  made  necessary  the 
development  of  mathematics,  and  rendered  it  a  basic  science  of  the 
new  technique.  The  second  rendered  imperative  a  study  of  the 
phenomena  of  expansion,  heat,  motion,  etc. ;  this  necessitated  the 
further  development  of  the  science  of  physics,  or  natural  philosophy, 
and  prescribed  it  as  antecedent  to  technique.  How  diligently  and 
successfully  these  preliminary  studies  were  made,  the  histories  of 
mathematics  and^of  physics  in  the  seventeenth  and  eighteenth  cen- 
turies abundantly  attest.  It  is  significant  that  chemistry  and  biology, 
which  were  not  needed  for  the  new  technique  which  found  expres- 
sion in  the  Industrial  Revolution,  did  not  receive  their  significant 
development  until  later.  How  closely  developments  in  physics  and 
mathematics  were  related  to  the  general  social  movement  is  evidenced 
by  the  expression  of  rationalism  and  empiricism  in  the  philosophy 
of  these  centuries,  culminating  in  the  naturalistic  philosophy  of  the 
later  eighteenth  century.  It  is  of  note,  too,  that  many  of  the  philos- 
ophers of  the  period  were  deeply  interested  in  mathematics,  several 
making  notable  contributions  to  the  subject.  These  sciences  had  to 
do  the  basic  work,  before  significant  technical  development  could 
occur.    Technology  had  to  bide  its  time. 

For  a  time  the  development  of  industrial  organization  distanced 
that  of  pure  technique.  Gradually  England  built  up  a  foreign  trade 
for  its  finished  commodities.  This  was  greatly  increased  by  the 
over-seas  demand.  In  proper  economic  order  the  larger  market  led 
to  an  increase  in  the  size  of  the  industrial  establishment,  and  the 
latter,  to  a  thorough  reorganization.  The  object  of  this  was  to  sub- 
divide tasks,  and  thus  to  reap  the  advantage  of  increased  individual 
efficiency  due  to  a  more  minute  specialization  of  labor.  The  expected 
advantage  of  a  decrease  in  costs  was  realized.  Further  it  has  an 
ulterior,  and  perhaps  more  permanent,  effect  in  supplying  the  last 
condition  necessary  to  the  appearance  of  the  new  technique.  Spe- 
cialization is  nothing  else  than  the  breaking  up  of  a  production 
operation  into  its  elements:  it  is  a  diflferentiation  of  productive  acts, 
the  isolation  of  a  unit  of  the  process.  It  tends  to  make  the  work  of 
the  laborer  the  monotonous  repetition  of  a  single  routine  act.  The 
task,  consequently,  assumes  just  the  form  in  which  it  can  better  be 
done  by  some  mechanical  contrivance,  that  repeats  the  single  neces- 
sary motion,  than  by  a  laborer.  It  was  in  just  this  way  that  factory 
reorganization  constantly  threw  oflF  new  isolated  tasks  and  visualized 
the  need  of  the  machine.  How  important  this  is  as  a  necessary 
antecedent  of  the  machine  is  indicated  by  the  use  of  the  term  Indus- 
trial Revolution  as  synonymous  with  factory  reorganization  by  a 
recent  writer,  who  contends  that  the  machine  was  not  the  cause,  but 
the  result,  of  the  Industrial  Revolution. 


THE  INDUSTRIAL  REVOLUTION  47 

The  very  introduction  of  the  machine  led  to  a  tendency  toward 
the  extension  of  its  use.  Four  aspects  of  this  tendency  are  note- 
worthy. First,  the  introduction  of  machines  in  industrial  establish- 
ments is  followed  by  a  lack  of  harmony  between  the  machine-work 
and  the  auxiliary  craft-work  in  the  establishment.  /Secondly,  there 
is  a  like  incompatibility  between  the  machine-operations  carried  on 
in  an  industrial  establishment  and  the  craft-operations  which  are 
antecedent  or  subsequent  to  it  in  the  industrial  process.  Friction  in 
such  cases  leads  to  an  extension  of  the  machine  system  to  comple- 
mentary activities  within  or  without  the  factory.  |  Thirdly,  complete 
harmony,  as  Marx  has  pointed  out,  requires  the  application  of  the 
machine  method  to  the  making  of  machines.  And,  fourthly,  the 
application  of  machinery  to  transportation  demands,  for  anything 
more  than  its  most  meager  use,  a  thoroughgoing  localization  of 
industry  and  a  great  enlargement  of  the  market  for  particular 
commodities. 

In  these  subsequent  developments  industrial  organization  and 
the  machine  technique  have  evidenced  a  constant  interdependence. 
[An  enlargement  of  the  market  increases  the  size  of  the  factory;  this 
leads  to  a  further  specialization  in  industrial  acts;  in  this  certain 
parts  of  the  larger  process  are  isolated  and  are  taken  over  by  ma- 
chines ;  this  leads  to  a  decrease  in  costs  and  to  a  lower  price  for  the 
goods ;  and  this  leads  to  an  enlargement  of  the  market  and  to  a 
repetition  of  the  cycleT^  One  point  as  well  as  another  marks  the 
beginning  of  this  endless  round ;  logically  there  is  no  absolute  cause 
and  no  absolute  effect.  But  we  must  remember  that  as  the  cycle 
tends  again  and  again  to  run  its  course,  its  convolutions  become 
narrower;  for  even  such  a  magical  sequence  is  itself  subject  to  the 
law  of  diminishing  returns.  Just  as,  if  we  attempt  to  find  the  begin- 
ning of  the  Industrial  Revolution,  we  get  lost  in  a  complicated  past ; 
so,  if  we  look  for  its  end,  we  lose  ourselves  in  industrial  change 
whose  completion  is  not  as  yet. 

Great  as  the  change  in  technique  has  been,  the  conquest  of  the 
machine  has  by  no  means  been  complete.  To  call  the  present  system 
the  machine  system  is  to  overlook  the  great  fields  which  the  machine 
has  failed  to  subdue.  In  practically  all  agriculture  the  larger  part 
of  production  is  still  under  the  control  of  the  craft ;  some  agrarian 
work  the  machine  has  hardly  touched.  Professional  and  clerical 
work,  as  well  as  a  large  part  of  commercial  work,  knows  as  yet  little 
of  the  machine.  In  country  towns  and  small  cities  the  crafts  still 
surv^ive.  Even  in  the  larger  industrial  centres  the  small  establishment 
and  handwork  loom  much  larger  in  total  than  at  first  would  appear. 
And  even  in  the  largest  and  best  organized  industrial  establishments 
large  oa.ses,  as  it  were,  of  the  older  system  are  left.     It  is  perhaps 


48  CURRENT  ECONOMIC  PROBLEMS 

true  that  the  influence  of  the  machine  reaches  far  beyond  the  physical 
fact,  and  that  it  exercises  an  overlordship  over  the  habits  and  Hves 
of  all.  But  this  overlordship  is  partial  and  incomplete.  The  lives 
and  habits  of  the  great  majority  are  still  more  immediately  affected 
by  the  older  craft  which  directly  affects  their  work  than  by  the  influ- 
ence of  the  newer  and  more  brilliant  technique. 

24.     The  Comprehensiveness  of  the  Revolution' 

BY  J.  H.  CLAPHAM 

No  region  of  Europe  remained  altogether  unaffected  by  that  long 
series  of  economic  developments  which  has  changed  the  face  and 
profoundly  affected  the  structure  of  modem  society.  It  was  no 
mere  industrial  revolution ;  its  story  is  not  a  list  of  inventions  or  a 
biography  of  inventors.  Nor  is  it  simply  the  story  of  capital  and 
capitalistic  production.  Side  by  side  with  mechanical  invention,  the 
rising  power  of  capital,  the  extension  of  economic  freedom,  and  the 
expansion  of  international  trade  went  an  astonishing  growth  in  pop- 
ulation and  a  partial  introduction  of  the  methods  and  results  of  exact 
science  into  economic  affairs.  The  'distinctive  mark  of  economic 
history  during  this  period  is  to  be  found,  not  in  any  change  or  group 
of  changes,  but  rather  in  the  coincidence  of  many  types  of  change 
and  the  rapidity  with  which  some  of  these  types  developed.  Ever)-- 
where  there  was  movement,  but  the  causes  of  the  movement  were 
infinitely  varied. 

The  whole  eighteenth  century  had  been  an  age  of  steady  indus- 
trial development  and  of  great  commercial  activity.  Intercourse 
among  the  nations  was  more  frequent  and  more  free  than  ever  be- 
fore. The  more  or  less  scientific  and  comparative  study  of  natural 
resources  was  now  no  new  thing.  Imitation  of  superior  foreign 
methods  in  agriculture,  commerce,  and  the  arts,  was  keenly  pur- 
sued. There  was  an  accelerating  accumulation  of  capital.  Banking, 
the  necessar}'  prerequisite  to  investment  and  the  organ  of  highly 
developed  commerce,  had  made  conspicuous  progress. 

Trade  was  cutting  its  own  channels,  wherever  Government  wouid 
permit.  In  the  more  advanced  countries  it  had  refused,  long  bef  are 
the  middle  of  the  eighteenth  century,  to  confine  itself  to  fairs  and 
markets,  after  the  medic-eval  fashion.  It  had  become  an  everyday 
matter,  had  ceased  to  be  a  thing  of  times  and  seasons. 

A  widespread  care  for  the  improvement  of  internal  means  of 

'Adapted  from  chap,  xxiii,  "Economic  Change,"  in  A  Cambridge  Modern 
History.  X,  72:7-73,9  (1907). 


THE  INDUSTRIAL  REVOLUTION  49 

communication,  combined  with  an  ever-growing  international  trade, 
had  quickened  the  pulse  of  economic  life.  In  Holland,  Italy,  and 
even  bankrupt  France,  the  work  went  on.  In  Great  Britain  the  task 
of  improving  river  navigation,  reconstructing  roads,  and  cutting 
navigable  canals  was  in  full  swing  in  the  seventies.  Because  of 
excess  of  tolls  elsewhere,  Britain  alone  was  able  to  make  full  use  of 
the  work  of  the  road  and  canal  builders. 

England  exemplified  the  close  connection  which  must  always 
exist  between  improvement  in  the  means  of  transport,  the  concen- 
tration of  population,  and  a  progressive  agriculture.  Where  the 
cultivator  works  only  to  supply  his  own  needs  he  rarely  escapes  from 
the  crushing  compulsion  of  traditional  methods.  The  demand  of 
the  town  and  roads  are  essential  if  there  is  to  be  rapid  movement  on 
the  land.  In  England  the  growth  of  London,  to  which  most  of  the 
new  roads  led,  furnished  a  main  driving  force.  Decline  in  com- 
mon field  husbandry  was  associated  in  Great  Britain  with  free  and 
rational  micthods  and  with  spontaneous  agricultural  progress. 

The  familiar  series  of  revolutionary  inventions  towards  the  close 
of  the  century  fell  upon  prepared  soil.  In  all  the  western  nations 
there  existed  some  mining  and  manufacturing  on  a  large  scale,  and 
many  trades  in  which  the  hand-workers  were  to  a  considerable  ex- 
tent dependent  on  the  capitalist  employer.  Large  and  small  indus- 
trial enterprises  were  everywhere  encouraged  by  the  governments. 
The  progress  in  organization  along  industrial  lines  was  due  mainly 
to  the  fact  that  industrial  establishments  woriced  for  export  and  so 
were  brought  under  the  influence  of  a  commercial  system  already 
organized  on  capitalistic  lines. 

A  right  instinct  has  selected  the  invention  of  spinning  machin- 
ery and  the  perfection  of  the  steam-engine  as  the  chief  industrial 
events  of  the  later  eighteenth  century'.  The  first  led  to  the  reor- 
ganization of  what  had  long  been  the  greatest  group  of  industries; 
the  second  furnished  motive  power  for  both  new  and  old  mechanical 
processes.  But  they  were  only  the  most  important  links  in  a  long 
chain  of  improvements  which  freer  industry,  increasing  skill  and 
capital,  expanding  commerce,  and  a  more  scientific  handling  of 
technical  problems,  introduced  into  various  branches  of  manufac- 
ture. .  In  almost  all  branches  of  industry  England  evolved  and  ap- 
plied fresh  methods  of  production.  Of  great  significance  for  the 
general  progress  of  manufacturing  was  the  increased  production  of 
raw  iron.  Of  even  greater  significance  was  the  establishment,  dur- 
ing the  first  forty  years  of  the  nineteenth  century,  of  mechanical  en- 
gineering as  the  organized  capitalistic  industry,  upon  which  all  other 
industries  were  beginning  to  depend. 


50  CURRENT  ECONOMIC  PROBLEMS 

The  cotton  trade  occupies  an  unique  position  in  the  general  move- 
ment. It  was  young ;  in  the  eighteenth  century  its  various  parts  had 
been  but  imperfectly  organized ;  and,  consequently,  it  was  adapt- 
able. The  wool- working  trades  on  the  contrary  were  old,  highly 
organized,  and  in  certain  districts  most  conservative.  It  is  in  no 
way  surprising  therefore  that  machinery  and  steam  were  more  slow- 
ly introduced  in  them  than  in  the  cotton  trade.  Wool  and  flax  and 
cotton  spinning  on  the  wheel  died  as  the  machine  gained  ground. 
Cotton,  an  exotic,  had  never  been  spun  extensively  outside  the 
actual  manufacturing  districts.  As  a  result  the  work  passed  much 
more  quickly  than  that  of  spinning  wool  into  the  mills. 

In  fact  few  trades  remained  untouched  by  the  general  advance 
in  technique  and  the  movement  towards  a  more  capitalistic  organi- 
zation. To  the  steady  improvement  of  manufacturing  processes 
were  added  the  new  and  expensive  motor  power,  better  and  more 
complex  machines,  and  the  new  knowledge  of  the  natural  sciences. 
Trades  ancillary  to  those  of  spinning  and  weaving,  such  as  calico- 
printing,  bleaching,  and  dyeing,  were  refashioned.  Machinery  and 
chemistry  began  to  influence  the  ancient  and  conservative  crafts  of 
tanning  and  leather-working.  In  pottery-making,  in  printing,  in 
brewing,  in  glass-making,  and  in  a  score  of  other  industries,  methods 
were  revised  and  the  scale  of  operations  for  the  individual  firm  ex- 
tended. The  power-driven  machine  took  hold  even  of  simple  crafts 
like  carpentry  and  shoemaking.  In  coal-mining  the  combined  ef- 
fects of  the  new  power,  the  new  needs,  and  the  new  knowledge  were 
conspicuous.  It  was  in  the  mines  that  steam  had  first  been  used 
for  pumping.  Yet  all  these  things  were  but  small  beginnings  com- 
pared with  the  developments  of  the  later  nineteenth  century. 

The  system  of  transportation  consequent  upon  the  changes  men- 
tioned was  not  developed  until  well  in  the  nineteenth  century.  Turn- 
pikes tended  to  become  more  numerous  and  to  be  better  laid  and 
better  graded.  .Work  on  harbors  and  estuaries  and  docks  was  un- 
dertaken concurrently  with  that  on  roads.  Canals  were  constructed. 
The  Napoleonic  wars  witnessed  the  beginnings,  the  peace  the  utili- 
zation of  steam  transport  both  on  land  and  sea.  It  was  in  the  year 
of  Waterloo  that  a  steamer  first  made  the  passage  from  London  to 
Glasgow.  Yet  progress  was  slow.  In  fact  the  second  quarter  of 
the  nineteenth  century  was  not  really  an  age  of  steam  navigation. 
On  land  a  more  real  and  rapid  revolution  occurred ;  but  it  remained 
incomplete  in  the  early  forties.  The  railway  found  the  reform  of 
the  old  means  of  transport  still  unfinished.  The  electric  telegraph, 
which  has  joined  with  the  railway  to  create  the  modern  market,  had 
hardly  passed  the  experimental  stage;  and  the  short-sighted  critics 


THE  INDUSTRIAL  REVOLUTION  51 

who  could  treat  the  railway  as  a  mere  nuisance  or  a  novel  luxury 
had  but  recently  been  silenced. 

25.    The  Significance  of  the  Revolution* 

BY  GRANT  ROBERTSON 

The  New  England  must  be  sought  in  Lancashire  and  the  West 
Riding,  in  the  coal-pits  of  Durham,  Northumberland,  and  South 
Wales,  in  the  Black  Country  and  the  Potteries.  The  industrial  town 
partly  creates,  is  partly  created  by,  the  industrial  area.  The  division 
of  labor,  the  concentration  of  population,  followed  inevitably  the 
localization  and  distribution  of  the  raw  material  of  manufactures. 
Men  and  women,  more  and  more  penned  into  the  towns,  are  depend- 
ent for  their  earnings,  not  on  the  sun  and  the  rain,  the  soil  and  the 
seasons  of  the  home  land,  but  on  the  brains  of  engineers,  on  the  com- 
mercial capacity  of  capitalists,  on  imports  from  East  and  West,  on 
the  bowels  of  the  earth,  and  on  specialized  skill  and  mechanical 
powers.  Three  things  they  must  have  or  perish — the  raw  material 
of  their  trade,  food,  and  expanding  maricets.^  Every  year  the  appli- 
cation of  machinery  and  motor  power  stimulated  enterprise  on  a 
large  scale,  and  increased  the  profits  of  scientific  organization.  Every 
new  invention  facilitated  the  rate  at  which  the  total  output  could 
be  increased,  while  it  demanded  a  corresponding  organization  for 
distribution,  exchange,  and  consumption.  The  object  of  the  manu- 
facturer was  to  create  and  control  markets  and  make  their  consump- 
tive capacity  as  elastic  as  his  capacity  to  produce.  England  as  "a 
workshop  for  the  world"  involved  a  world  ready  to  absorb  the  pro- 
ducts of  the  workshop,  and  the  crux  of  the  problem  did  not  lie  in 
the  certainties  of  production,  but  in  the  potentialities  of  exchange 
and  consumption.  Hence  the  new  economic  data  necessitated  the 
rewriting  of  old  and  the  writing  of  new  chapters  to  the  theorj'  of 
Political  Economy,  and  the  school  of  Ricardo  is  bom  out  of  the 
school  of  Adam  Smith.  The  centre  of  political  gravity  slowly  shifts 
with  a  shifting  of  the  centre  of  economic  gravity.  The  political  and 
economic  interests  of  a  vast  class  of  industrial  workers  and  consum- 
ers, divorced  from  the  land  and  linked  with  the  capitalist  and  manu- 
facturing entrepreneur,  became  more  and  more  opposed  to  the  inter- 
ests of  the  landowner. 

By  1785  in  our  agricultural  economy  the  results  had  cut  sharply 
into  the  quick.    Farming  on  a  large  scale,  the  increasing  application 

•Adapted  from  England  under  the  Hanoverians,  328-346  (1912). 


52  CURRENT  ECONOMIC  PROBLEMS 

of  agricultural  science,  the  consolidation  of  estates,  and  the  enclos- 
ures, had  combined  to  dislocate,  and  in  some  cases  extinguish  alto- 
gether, the  yeoman  and  the  cottager  of  the  old  order.  By  1800  there 
was  a  marked  diminution  of  the  number  of  the  small  landowners 
and  a  steady  disappearance  of  the  village  community  as  a  coopera- 
tive organization  for  the  cultivation  of  the  soil.  Of  this  revolution 
the  evolution  of  the  "free-hand,"  the  landless  laborer  working  for 
wages,  was  a  direct  consequence.  A  new  landed  interest  was  in 
process  of  creation.  Its  chief  function  was  to  provide  more  and 
more  food;  its  chief  object  to  reap  the  profits  of  its  combined  duty. 
and  interest.  Goldsmith's  Deserted  Village  written  in  1770,  and 
the  Corn  Law  of  1773,  conveniently  mark  a  point  of  departure. 
The  legislature,  controlled  by  the  landed  classes,  tried  to  make  Eng- 
land self-sufficient.  As  population  increased  the  margin  of  cultiva- 
tion was  forced  down  and  prices  went  up.  The  need  for  increased 
supplies  could,  under  the  law  of  diminishing  returns,  be  met  only 
by  increased  cost  of  production.  The  rise  in  rent  kept  pace  with 
the  rise  in  prices  to  the  landlord's  gain ;  but  the  problem  of  pauper- 
ism, rooted  in  low  wages  and  high  prices,  yearly  became  more  for- 
midable. The  result  was  the  formulation  of  new  fundamental  prob- 
lems of  government.  Can  agricultural  science,  aided  by  Legisla- 
tion, procure  the  necessary  supply  of  food  from  home  resources? 
In  the  national  economy  which  is  the  more  important,  agriculture 
or  manufactures  ?  Which  is  socially  the  more  beneficial,  cheap  food 
or  a  lower  margin  of  cultivation  and  higher  rents?  Is  the  landed 
interest  or  the  industrial  interest  to  have  the  deciding  voice  in  poli- 
tics? 

*-The  new  industrial  interest  was  coming  to  rest  upon  a  new  social 
economy.  Since  1750  there  had  been  a  vast  increase  of  capital.  The 
political  expansion  of  the  empire,  the  new  markets  across  the  seas, 
and  the  development  of  colonial  possessions  precede  the  Industrial 
Revolution.  Because  of  the  freedom  of  England  from  invasion,  the 
country  was  spared  the  periodic  devastation  of  fixed  capital,  and  the 
hindrances  to  accumulation  that  invasion  brought  with  it.  The 
character  of  our  citizens  and  the  conditions  of  the  epoch  combined 
to  focus  the  energies  of  the  race  on  the  creation  of  wealth,  and  the 
openings  for  profitable  investments  in  agriculture,  industry,  and 
commerce  put  a  premium  on  saving.  We  can  broadly  measure  the 
increase  in  wealth  by  the  fact  that  the  financing  o£  the  agricultural 
and  industrial  revolution,  and  of  the  colossal  eighteenth  century 
wars,  was  accomplished  from  British  resources  alone. 

The  "capitalist"  in  the  strict  economic  sense  was  no  new  appari- 
tion.   Nor  was  industry  working  on  a  capitalistic  basis  new.    What 


THE  INDUSTRIAL  REVOLUTION  53 

is  new  is,  first,  the  capitalist  entrepreneur,  primarily  a  manufacturer, 
not  a  moneyed  man  engaged  in  commerce;  secondly,  the  growth  of 
a  class  of  capitalist  entrepreneurs;  thirdly,  the  gradual  domination 
of  industr)'  by  that  class ;  and,  fourthly,  the  type  of  industrial  organ- 
ization that  he  creates  and  the  scale  on  which  he  applies  it.  To 
A-dam  Smith  a  "manufacturer"  was  still  a  workman,  woricing  with 
his  own  hands  in  his  own  home  or  workshop,  with  his  own  tools. 
The  manufacturer  of  the  Industrial  Revolution  is  the  modem  master 
who  provides  capital,  owns  his  mill  or  factory,  together  with  the 
machinery  and  tools  provided  for  his  "hands,"  pays  these  "hands" 
wages,  and  creates  and  maintains  a  market. 

With  the  new  capitalist  is  bom  the  new  industrial  proletariat, 
that  ever-increasing  army  of  men  and  women  who  are  wage-earners 
and  are  a  new  stratum  in  the  economic  world.  The  Revolution  that 
dissolved  the  link  between  the  peasant  and  the  soil  forged  the  bond 
that  chained  the  wage-earner  to  the  town.  Swollen  by  the  dislocated 
peasantry,  by  their  own  power  to  reproduce  themselves  in  obedience 
to  the  increasing  demand  of  capital  and  science  for  human  hands 
and  bodies,  they  have  come  to  stay  and  to  create  another  England. 
The  slow  establishment  of  a  reserve  of  labor  that  can  be  called  into 
the  working  line  when  trade  requires  it,  and  be  thrust  back  when 
it  is  slack,  the  problems  of  unempIo}Tnent  and  the  unemployable,  are 
not  the  least  of  the  formidable  enigmas  forced  on  humanity  by  the 
wage-earner  and  the  Industrial  Revolution. 

Any  picture  grouping  the  features  in  clear-cut  symmetry  would 
be  false  to  the  facts.  In  different  trades,  in  different  areas,  under 
varying  conditions  and  degrees  of  pressure,  an  amazing  diversity, 
not  uniformity,  is  the  prevailing  note  of  the  economic  phenom- 
ena. The  old  order  did  not  perish  at  a  blow.  The  new  was  not 
introduced  complete  by  a  few  remarkable  inventions  and  a  group 
of  organizers.  The  peasant  was  not  universally  divorced  from 
industry  nor  the  industrial  population  from  the  soil.  But  in  the 
stream  of  tendencies  and  the  competition  between  the  old  and  the 
new  every  year  saw  one  more  stone  in  the  ancient  fabric  dislodged, 
one  more  stone  in  the  new  fabric  cemented. 

The  face  of  the  country  was  being  altered.  The  new  roads  and 
the  canals  are  made  not  for  the  traveler  on  pleasure  bent,  but  to 
bring  the  places  where  men  produce  into  communication  with  the 
centres  of  exchange.--  Mark,  ton,  hgwjhe  roads  and  canals  more  and 
more  lead  to  and  from  the  urban  w^orksliops,  to  and  from  the  sea. 
From  the  sea  the  bulk  of  the  raw  material  must  come — to  the  sea 


54  CURRENT  ECONOMIC  PROBLEMS 

much  of  the  finished  product  will  go.  Commerce,  like  war,  is  an 
affair  of  positions  to  start  with.  England  was  quick  to  take  ad- 
vantage of  its  strategic  commercial  position.  The  trend  of  population 
is  at  first  to  the  strategic  and  focal  centres  of  a  distributing,  exchang- 
ing, bartering,  and  carrying  trade.  Then  comes  the  revelation  of 
internal  resources,  Geological  formation  underpins  geographical 
configuration.  From  1770  onwards  a  student  with  a  geological 
map  and  some  knowledge  of  the  economic  data  of  the  new  trades 
might  predict  a  priori  where  the  new  industrial  centres  must  be.  In 
the  whole  island  so  bitten  and  fretted  is  the  coast  line  that  it  is 
impossible  to  place  a  pin-point  anywhere  on  the  map  which  is  more 
than  sixty  miles  from  salt  water.  What  this  means  for  imports  and 
exports  needs  no  exposition.  By  1801  imports  and  exports  are  an 
absolute  necessity  of  bare  existence. 

The  country  town  is  either  transformed  by  industry  or  it  slips 
into  subordination  to  the  new  towns.  These  are  not  places  which 
men  and  women  inhabit  through  choice,  but  to  live  in,  to  produce, 
to  exchange,  to  breed  in,  and  to  die.  They  are  stamped  with  the 
feudalism  of  industry,  a  feudalism  seated  among  factory  chimneys, 
warehouses,  the  roar  and  glare  of  blast  furnaces,  the  undying  throb 
of  machinery  drowning  the  tramp  of  the  wearied  feet  of  men  and 
women  born  tired  and  condemned  to  toil.  Over  the  new  towns  are 
hung  the  banners  and  scutcheon  of  the  industrial  lords.  Within 
there  is  the  dull  monotony  of  brick  and  stone,  sweat  and  grime  and 
smoke,  unceasing  noise,  the  stress  of  competition  whose  cessation 
means  ruin. 

The  new  urban  race  living  under  new  conditions  is  a  new  people. 
Its  pleasures,  hopes,  fears,  needs  will  be  different,  alike  from  those  of 
the  old  cities,  the  old  mercantilism,  the  old  agriculture.  It  will  create 
a  new  type  of  character,  frame  new  values,  hammer  out  from  the 
dirt  and  roar  of  the  teeming  hives  ideals  of  life  and  government 
bound  to  clash  fiercely  with  the  ideals  inherited  from  a  different  past. 
It  will  ask  for  new  creeds ;  it  will  demand  a  new  economics ;  it  will 
need  and  make  a  new  literature.  The  rearrangement  of  the  ele- 
ments of  society,  and  the  regrading  of  classes,  will  bury  deeper  and 
deeper  each  day  the  legal  framework  of  the  old  order.  The  prob- 
lems of  national  physique,  motherhood,  childhood,  education,  pau- 
perism, citizenship,  happiness  are  old ;  but  restated  in  the  terms  of  a 
growing  industrial  democracy  they  become  new,  and  with  every 
decade  more  complex,  urgent,  and  formidable. 


THE  INDUSTRIAL  REVOLUTION  55 

C.     LABOR  AND  THE  REVOLUTION 
26.     Labor's  Willing  Slaves^ 

BY  EDWIN  ARNOLD 

Look  at  common  modern  existence  as  we  see  it,  and  note  to 
what  rich  elaboration  and  large  degrees  of  comfort  it  has  come.  I 
invite  you  briefly  to  contemplate  the  material  side  of  an  artisan's 
existence  in  your  own  Birmingham.  Let  alone  the  greatness  of 
being  an  Englishman,  and  the  supreme  safety  and  liberty  of  his 
daily  life,  what  king  of  old  records  ever  fared  so  royally?  What 
magician  of  fairy  tales  ever  owned  so  many  slaves  to  bring  him 
treasures  and  pleasures  at  a  wish?  Observe  his  dinner-board. 
Without  being  luxurious,  the  whole  globe  has  played  him  serving- 
man  to  spread  it.  Russia  gave  the  hemp,  or  India,  or  South  Carolina 
the  cotton,  for  that  cloth  which  his  wife  lays  upon  it.  The  Eastern 
islands  placed  there  those  condiments  and  spices  which  were  once 
the  secret  relishes  of  the  wealthy.  Australian  downs  sent  him 
frozen  mutton  or  canned  beef,  the  prairies  of  America  meal  for  his 
biscuit  and  pudding;  and  if  he  will  eat  fruit,  the  orchards  of  Tas- 
maniaand  the  palm  woods  of  the  West  Indies  proffer  delicious  gifts, 
while  the  orange  grovel  of  Florida  and  of  the  Hesperides  cheapen 
for  his  use  those  "golden  apples"  which  dragons  used  to  guard. 
His  coffee  comes  from  where  the  jeweled  humming-birds  hang  in 
the  bowers  of  Brazil,  or  purple  butterflies  flutter  amid  the  Javan 
mangroves.  Great  clipper  ships,  racing  by  night  and  day  under 
clouds  of  canvas,  convey  to  him  his  tea  from  China  or  Assam,  or 
from  the  green  Singhalese  hills.  The  sugar  which  sweetens  it  was 
crushed  from  canes  that  waved  by  the  Nile  or  the  Orinoco ;  and  the 
plating  of  the  spoon  with  which  he  stirs  it  was  dug  for  him  from 
Mexican  or  Nevadan  mines.  The  currants  in  his  dumpling  are  a 
tribute  from  classic  Greece,  and  his  tinned  salmon  or  kippered  her- 
ring are  taken  from  the  seas  and  rivers  of  Canada  or  Norway.  He 
may  partake,  if  he  will,  of  rice  that  ripened  under  the  hot  skies  of 
Patna  or  Rangoon ;  of  cocoa,  that  "food  of  the  gods,"  plucked  under 
the  burning  blue  of  the  Equator.  For  his  rasher  of  bacon,  the  hog- 
express  runs  daily  with  10,000  grunting  victims  into  Chicago ;  Dutch 
or  Brittany  hens  have  laid  him  his  eggs,  and  Danish  cows  grazed  the 
daisies  of  Elsinore  to  produce  his  cheese  and  butter.  If  he  drinks 
beer,  it  is  odds  that  Belgium  and  Bavaria  have  contributed  to  it  the 
barley  and  the  hops ;  and  when  he  has  finished  eating,  it  will  be  the 

^Adapted   from  an  address  delivered  at  the  Birmingham  and   Midland 
Institute,  October  10.  1893. 


56  CURRENT  ECONOMIC  PROBLEMS 

Mississippi  flats  or  the  gardens  of  the  Antilles  that  fill  for  him  his 
pipe  with  the  comforting  tobacco.  He  has  fared,  I  say,  at  home  as 
no  Heliogabalus  or  LucuUus  ever  fared;  and  then,  for  a  trifle,  his 
daily  newspaper  puts  at  his  command  information  from  the  whole 
globe,  the  freshness  and  fulness  of  which  make  the  news-bearers  of 
Augustus  Caesar,  thronging  hourly  into  Rome,  ridiculous.  At  work, 
machinery  of  wonderful  invention  redeems  his  toil  from  servitude, 
and  elevates  it  to  an  art.  Is  he  fond  of  reading?  There  are  free 
libraries  open  to  him,  full  of  intellectual  and  imaginative  wealth. 
Is  he  artistic?  Galleries  rich  with  beautiful  paintings  and  statues 
are  prepared  for  him.  Has  he  children  ?  They  can  be  educated  for 
next  to  nothing.  Would  he  communicate  with  absent  friends  ?  His 
messengers  pass  in  the  Queen's  livery,  bearing  his  letters  everywhere 
by  sea  and  land ;  or  in  hour  of  urgency  the  Ariel  of  electricity  will 
flash  for  him  a  message  to  the  ends  of  the  Kingdom  at  the  price  of  a 
quart  of  small-beer.  Steam  shall  carry  him  wherever  he  would  go  for 
a  halfpenny  a  mile ;  and  when  he  is  ill  the  charitable  institutions  he 
has  too  often  forgotten  in  health  render  him  such  succor  as  sick 
goddesses  never  got  from  Aesculapius,  nor  Ulysses  at  the  white 
hands  of  Queen  Helen.  Does  he  encounter  accident?  For  him  as 
•for  all  others  the  benignant  science  of  our  time,  with  the  hypodermic 
syringe  or  a  waft  of  chloroform,  has  abolished  agony;  while  for 
dignity  of  citizenship,  he  may  help,  when  election  time  comes,  by  his 
vote  to  sustain  or  to  shake  down  the  noblest  empire  ever  built  by 
genius  or  valor.  Let  fancy  fill  up  the  imperfect  picture  with  those 
thousand  helps  and  adornments  that  civilization  has  brought  even 
to  lowly  lives ;  and  does  it  not  seem  stupid  and  ungrateful  to  say, 
as  some  go  about  saying,  that  such  an  existence,  even  if  it  were 
transitory,  is  not  for  itself  distinctly  worth  possessing? 

27.    The  Wage-Slaves* 

BY  AIvIvAN  h.  BENSON 

Poverty  did  not  go  out  when  steam  and  electricity  came  in.  On 
the  contrary,  the  fear  of  want  became  intensified.  Now,  nobody 
who  has  not  capital  can  live  unless  he  can  get  a  job.  In  the  days 
that  preceded  the  steam  engine,  nobody  had  to  look  for  a  job.  The 
shoemaker  could  make  shoes  for  his  neighbors.  The  weaver  could 
weave  cloth.  Each  could  work  at  his  trade  without  anybody's  per- 
mission, because  the  tools  of  his  trade  were  few  and  inexpensive. 
X^ow,  neither  of  them  can  woric  at  his  trade,  because  the  tools  of 

"Adapted  from  The  Truth  about  Socialism,  6-7.  Copyright  by  the 
author    (1911). 


THE  INDUSTRIAL  REVOLUTION  57 

his  trade  have  become  numerous  and  expensive.  The  tools  of  the 
shoemaker's  trade  are  in  the  great  factory  that  covers,  perhaps,  a 
dozen  acres.  The  tools  of  the  weaver's  trade  are  in  another  enor- 
mous factory.  Neither  the  shoemaker  nor  the  weaver  can  ever 
hope  to  own  the  tools  of  his  trade.  Nor,  with  the  little  hand-tools 
of  the  past  centuries,  can  either  of  them  compete  with  the  modem 
factories.  The  shoe  trust,  with  steam,  electricity,  and  machinery, 
can  make  a  pair  of  shoes  at  a  price  that  no  shoemaker,  working  by 
hand,  could  touch. 

Thus  the  hand-workers  have  been  driven  to  knock  at  the  doors 
of  the  factories  that  rich  men  own  and  ask  for  work.  If  the  rich 
men  can  see  a  profit  in  letting  the  poor  men  work,  the  poor  men  are 
permitted  to  work.  If  the  rich  men  cannot  see  a  profit  in  letting 
the  poor  men  work,  then  the  poor  men  may  not  work.  Though  there 
be  the  greatest  need  for  shoes,  if  those  in  need  have  no  money,  the 
rich  men  lock  up  their  factories  and  wave  the  workers  away.  The 
workers  may  starve,  if  they  like.  Their  wives  and  children  may 
starve.  The  workers  may  become  tramps,  criminals  or  maniacs; 
their  wives  and  their  children  may  be  driven  into  the  street — ^but 
the  rich  men  who  closed  their  factories  because  they  could  see  no 
profit  in  keeping  them  open, — these  rich  men  take  no  part  of  the 
responsibility.  They  talk  about  "the  laws  of  trade,"  go  to  their 
clubs  and  have  a  little  smoke,  and,  perhaps,  the  next  week  give  a 
few  dollars  to  "worthy  charity"  and  forget  all  about  the  workers. 

D.    THE  NEW  INDUSTRIALISM 
28.     The  Function  of  Capital" 

BY  J.  DORSEY  FORREST 

Before  the  Revolution  capital  had  little  significance  except  in 
agriculture  and  commerce.  Such  simple  tools  and  machines  as  were 
used  in  manufacturing  were  the  property  of  the  workmen  them- 
selves, and  consequently  had  no  such  social  importance  as  modem 
capital  has.  Except  for  the  introduction  of  the  great  mechanical 
devices  and  the  application  of  steam-power,  capital  could  never  have 
assumed  the  tremendous  importance  which  it  has  attained.  The 
function  of  capital,  then,  is  the  same  in  kind  as  it  was  before  the 
beginning  of  machine  industry,  but  the  quantitative  difference  is  so 

•Adapted  from  The  Development  of  Western  Civilization,  331-338.  Copy- 
right by  the  University  of  Chicago  (1906). 


58  CURRENT  ECONOMIC  PROBLEMS 

great  as  to  constitute  "capitalism"  a  virtually  new  phenomenon. 

The  immensity  of  modern  industrial  undertakings  necessitates 
the  employment  of  the  surplus  wealth  of  the  entire  community.  No 
small  company  of  men  can  furnish  the  requisite  amount  of  capital. 
It  is  demanded  in  such  gigantic  quantities  that  it  cannot  be  supplied 
by  the  managers  of  industry,  nor  even  by  those  more  conspicuous 
capitalists  who  manipulate  stocks  and  shape  policies.  These  very 
wealthy  men  may  own  a  large  share  of  the  whole ;  well-to-do  people 
who  take  no  active  part  in  business  management  also  own  a  large 
share;  while  the  better  class  of  artisans  likewise  supply  hundreds 
of  millions  of  capital,  especially  of  that  floating  portion  which  is 
supplied  through  the  banks  for  the  payment  of  their  own  wages  and 
the  purchase  of  materials.  Modern  capitalistic  production  is  essen- 
tially co-operative. 

The  wide  ownership  of  the  means  of  production  is  an  indication 
of  the  social  character  of  production.  Practically  all  of  the  available 
wealth  of  society  is  now  directed  to  productive  uses.  If  a  completely 
socialistic  scheme  could  be  carried  out,  it  would  be  necessary,  un- 
less society  should  confiscate  all  private  property  now  held,  to  obtain 
the  capital  from  those  who  are  now  furnishing  it.  If  public  bonds 
should  be  given  to  the  present  capitalists,  it  is  difficult  to  see  how 
the  new  system  would  dififer  materially  from  the  present  one.  In 
short,  there  has  been  developed,  along  with  this  great  industrial  sys- 
tem, a  banking  and  credit  system  through  which  all  wealth  not  re- 
served for  consumption  may  be  made  available  for  production.  Be- 
fore the  Industrial  Revolution,  banking  was  of  very  minor  import- 
ance. At  present  the  enormous  banking  interests  of  all  civilized 
countries  and  the  equally  important  credit  arrangements  by  which 
capital  may  easily  be  turned  into  the  industries  which  need  it,  make 
possible  the  employment  of  the  resources  of  the  whole  society  in  the 
production  of  the  goods  desired  by  society. 

The  individual  is  compelled  to  serve  society  in  caring  for  his  own 
interests  by  turning  back  into  the  productive  processes  much  of  the 
profit  derived  from  invested  capital  or  managerial  ability.  The  in- 
comes of  the  wealthy  are  largely  turned  back  to  productive  purposes, 
making  possible  the  enlargement  of  plants,  the  employment  of  more 
laborers,  the  increase  of  production,  the  cheapening  of  prices.  In 
many  directions  the  consuming  capacity  of  the  individual,  rich  or 
poor,  is  limited.  Extravagant  consumption  is  possible  to  a  certain 
extent,  and  is,  perhaps,  a  growing  evil.  But  the  total  waste  of  the 
rich  is  probably  a  small  item  which,  if  saved  and  distributed  through- 
out the  whole  society,  would  be  of  little  consequence.  The  chief 
use  which  the  wealthy  capitalist  can  make  of  the  income  of  his 


THE  INDUSTRIAL  REVOLUTION  59 

capital  is  to  add  it  to  his  capital  and  employ  it  in  the  production  of 
still  larger  quantities  of  the  goods  of  common  consumption.  The 
evil  of  the  possession  of  great  wealth  lies  rather  in  the  unworthy 
social  prestige  and  opportunity  for  corrupt  use  which  its  possession 
gives  to  the  rich  than  in  the  greater  amount  of  goods  which  the 
rich  consume.  The  evils  connected  with  capitalism  should  not  blind 
us  to  the  real  efficiency  of  our  present  social  system  in  harmonizing 
individual  and  social  interests  by  controlling  all  surplus  wealth  in 
the  interests  of  society. 

29.    The  Factory  System^" 

BY  CARL  BtJCHER 

The  factory  system  organizes  the  whole  process  of  production; 
it  unites  various  kinds  of  woricers,  by  mutual  relations  of  control 
and  subjection,  into  a  compact  and  well-disciplined  body,  brings 
them  together  in  a  special  business  establishment,  provides  them  with 
an  extensive  and  complex  outfit  of  the  machinery  of  production,  and 
thereby  immensely  increases  their  productive  powers.  Just  as  in  an 
army  corps  ready  for  battle,  troops  of  varied  training  and  accoutre- 
ment— infantry,  cavalry,  and  artillery  regiments,  pioneers,  engineers, 
ammunition  columns,  and  commissariat, — are  welded  into  one,  so 
under  the  factory  system  groups  of  workers  of  varied  skill  and 
equipment  are  united  and  enabled  to  accomplish  the  most  difficult 
tasks  of  production. 

The  secret  of  the  factory's  strength  for  production  thus  lies  in 
the  effective  utilization  of  labor.  To  accomplish  this,  it  takes  a  pe- 
culiar road,  which  at  first  appears  circuitous.  It  divides  as  far  as 
possible  all  the  woric  necessary  to  a  process  of  production  into  its 
simplest  elements,  separates  the  difficult  from  the  easy,  the  mechan- 
ical from  the  intellectual,  the  skilled  from  the  rude.  It  thus  arrives 
at  a  system  of  successive  functions,  and  is  enabled  to  employ  simul- 
taneously and  successively  human  powers  of  the  most  varied  kind — 
trained  and  untrained  men,  women  and  children,  workers  with  the 
hand  and  head,  workers  possessing  technical,  artistic,  and  commer- 
cial skill.  The  restriction  of  each  individual  to  a  small  section  of 
the  process  effects  a  mighty  increase  in  the  volume  of  work  turned 
out.  A  hundred  workmen  in  a  factory  accomplish  more  than  a  hun- 
dred independent  master  craftsmen,  although  each  of  the  latter  un- 
derstands the  whole  process,  while  none  of  the  former  understands 
more  than  a  small  part  of  it. 

^"Adapted  from  Industrial  Evolution,  173-176,  translated  by  S.  Morley 
Wickett.    Copyright  by  Henry  Holt  &  Co.  (1900). 


6o  CURRENT  ECONOMIC  PROBLEMS 

The  machine  is  not  the  essential  feature  of  the  factory,  although 
the  subdivision  of  work  just  described  has,  by  breaking  up  labor 
into  simple  movements,  multiplied  the  application  of  machinery.  Its 
application  attained  its  present  importance  only  when  men  succeeded 
in  securing  a  motive  power  that  would  work  unintermittently,  uni- 
formly and  ubiquitously,  namely,  steam.  An  example  will  illus- 
trate. In  1787  the  canton  of  Zurich  had  34,000  male  and  female 
hand-spinners  producing  cotton  yam.  After  the  introduction  of 
English  spinning  machines  a  few  factories,  employing  one-third  the 
former  number  of  workers,  produced  an  even  greater  quantity  of 
thread.  What  is  the  explanation?  The  machine?  But  was  not  the 
former  spinning-wheel  a  machine?  Certainly  it  was,  and  a  very 
ingenious  one.  Machine  was  thus  ousted  by  machine.  Or  better, 
the  entire  spinning  process  had  been  decomposed  into  its  simplest 
elements,  and  perfectly  new  operations  had  arisen  for  which  even 
immature  powers  could  in  part  be  utilized. 

In  the  subdivision  of  work  originate  these  further  peculiarities 
of  factory  production — the  necessity  of  manufacturing  on  a  large 
scale,  the  requirement  of  a  large  capital,  and  the  economic  depend- 
ence of  the  workman. 

Finally,  its  large  fixed  capital  assures  to  factory  work  greatei- 
steadiness  in  production  than  was  possible  under  other  systems. 
The  manufacturer  must  go  on  producing,  because  he  fears  loss  of 
interest  and  shrinkage  in  the  value  of  his  fixed  capital,  and  because 
he  can  not  afford  to  lose  his  trained  body  of  workmen. 

30.     The  Machine  Process^^ 

BY  THORSTEIN  B.  VElBlvEN 

In  its  bearing  on  modern  life  and  modem  business,  the  "machine 
process"  means  something  more  comprehensive  and  less  external 
than  a  mere  aggregation  of  mechanical  appliances.  The  civil  engi- 
neer, the  mechanical  engineer,  the  mining  expert,  the  industrial 
chemist, — the  work  of  all  these  falls  within  the  limits  of  the  modern 
machine  process.  The  scope  of  the  process  is  larger  than  the  ma- 
chine. Many  agencies  which  are  not  to  be  classed  as  mechanical 
appliances  have  been  drawn  into  the  process,  and  have  become  inte- 
gral factors  in  it.  Wherever  manual  dexterity,  the  mle  of  thumb, 
and  the  fortuitous  conjectures  of  the  seasons  have  been  supplanted 
by  a  reasoned  procedure  on  the  basis  of  a  systematic  knowledge  of 

^^Adapted  from  The  Theory  of  Business  Enterprise,  S-19.  Copyright  by 
Charles  Scribner's  Sons  (1904). 


THE  INDUSTRIAL  REVOLUTION  6i 

the  forces  employed,  there  the  mechanical  industry  is  to  be  found, 
even  in  the  absence  of  intricate  mechanical  contrivances.  It  is  a 
question  of  the  character  of  the  process  rather  than  a  question  of 
the  contrivances  employed.  Chemistry,  agricultural,  and  animal  in- 
dustries, as  carried  on  by  modern  methods  and  in  due  touch  with 
the  market,  are  to  be  included  in  the  modem  complex  of  mechanical 
industry. 

Not  one  of  the  processes  carried  on  by  the  use  of  a  given  outfit 
of  appliances  is  independent  of  other  processes  going  on  elsewhere. 
Each  draws  upon  and  presupposes  the  proper  working  of  many 
other  processes  of  a  similar  mechanical  character.  Each  of  the 
processes  in  the  mechanical  industries  follows  some  and  precedes 
other  processes  in  an  endless  sequence,  into  which  each  fits  and  to 
the  requirements  of  which  each  must  adapt  its  own  working.  The 
whole  concert  of  industrial  operations  is  to  be  taken  as  a  machine 
process,  made  up  of  interlocking  detail  processes,  rather  than  as  a 
multiplicity  of  mechanical  appliances  each  doing  its  particular  work 
in  severalty.  The  whole  makes  a  more  or  less  delicately  balanced 
complex  of  sub-processes. 

Looked  at  in  this  way  the  industrial  process  shows  two  well- 
marked  general  characteristics:  (a)  the  running  maintenance  of 
interstitial  adjustments  between  the  several  sub-processes  or  branch- 
es of  industr\' :  and  (b)  an  unremitting  requirement  of  quantitative 
precision,  accuracy  in  point  of  time  and  sequence,  in  the  proper  in- 
clusion or  exclusion  of  forces  affecting  the  outcome,  in  the  magni- 
tude of  the  various  physical  characteristics,  weight,  size,  density, 
etc.,  of  the  materials  handled  as  well  as  the  materials  used.  This 
requirement  of  mechanical  accuracy  and  nice  adaptation  to  specific 
uses  has  led  to  a  gradual  enforcement  of  uniformity,  to  a  reduction 
to  staple  grades  and  staple  character  in  the  materials  handled,  and 
to  a  thorough  standardizing  of  tools  and  units  of  measurement. 
Standard  physical  measurements  are  the  essence  of  the  machine 
regime. 

Standardization  has  outnm  urgent  industrial  needs  and  has  pen- 
etrated every  comer  of  the  mechanical  industries.  Modem  com- 
munities show  an  unprecedented  uniformity  in  legally  adopted 
weights  and  measures.  As  a  matter  of  course  tools  and  the  various 
structural  materials  used  are  made  of  standard  sizes,  shapes,  and 
gauges.  The  adjustment  and  adaptation  of  part  to  part  and  of  pro- 
cess to  process  has  passed  out  of  the  category  of  craftsmanlike  skill 
into  the  category  of  mechanical  standardization.  Modern  industry 
has  little  use  for,  and  can  make  little  use  of,  what  does  not  conform 
to  the  standard.     This  latter  calls  for  too  much  of  craftsmanlike 


62  CURRENT  ECONOMIC  PROBLEMS 

skill,  reflection,  and  individual  elaboration,  and  is  therefore  not  avail- 
able for  economic  use  in  the  processes.  Irregularity  is  itself  a  fault  in 
any  item,  for  it  brings  delay,  and  a  delay  at  any  point  means  a  more 
or  less  far-reaching  and  intolerable  retardation  of  the  comprehen- 
sive industrial  process  at  large. 

The  materials,  and  moving  forces  of  industry  are  undergoing  a 
like  reduction  to  staple  kinds,  styles,  grades,  and  gauges.  The  like 
is  true  of  finished  products.  As  regards  the  mass  of  civilized  man- 
kind, the  idiosyncrasies  of  the  individual  consumers  are  required 
to  conform  to  the  uniform  gradations  imposed  upon  consumable 
goods  by  the  comprehensive  mechanical  processes  of  industry.  Be- 
cause of  this  it  follows  that  the  demand  for  goods  settles  upon  cer- 
tain defined  lines  of  production  which  handle  certain  materials  of 
definite  grade,  in  certain,  somewhat  invariable,  forms  and  propor- 
tions. Standardization  means  economy  at  nearly  all  points  of  the 
process  of  supplying  goods,  and  at  the  same  time  it  means  certainty 
and  expedition  at  nearly  all  points  in  the  business  operations  in- 
volved in  meeting  current  wants.  It  also  reduces  the  interdepend- 
ence of  businesses  to  more  definite  terms.  Machine  production  also 
leads  to  a  standardization  of  services. 

By  virtue  of  this  concatenation  of  processes  the  modern  indus- 
trial system  at  large  bears  the  character  of  a  comprehensive,  bal- 
anced mechanical  process.  To  an  efficient  working  of  this  industrial 
process  at  large,  the  various  constituent  sub-processes  must  work  in 
due  coordination  throughout  the  whole.  Any  degree  of  maladjust- 
ment in  some  degree  hinders  its  working.  Similarly,  any  detailed 
process  or  industrial  plant  will  do  its  work  to  full  advantage  only 
when  due  adjustment  is  had  between  its  work  and  the  work  done 
by  the  rest.  The  more  fully  a  given  industry  has  taken  on  the 
character  of  a  mechanical  process,  the  more,  urgent  is  the  need  of 
maintaining  proper  working  arrangements  with  other  industries. 

31.    The  New  Domestic  System" 

BY  HERBERT  J.  DAVENPORT 

So  long  as  industry  held  its  place  in  the  home — down,  that  is,  to 
the  close  of  the  handicraft  era — even  the  palace  and  the  castle  re- 
tained their  share  of  industrial  activity.  Under  the  supervision  of 
the  lady-mistress,  the  spinning  maiden  and  the  weavers  were  at 
their  tasks.  In  truth  each  great  dame  was  a  lady  in  the  strict  and 
early  sense  of  the  word,  a  bread-dispenser,  the  mistress  of  an  ex- 

**Adapted  from  an  unpublished  address  entitled  "The  Economics  of 
Feminism"   (1914)- 


THE  INDUSTRIAL  REVOLUTION  63 

tended  and  active  and  intricately  organized  domestic  activity — a 
serious  and  absorbing  and  difficult  function  for  which  the  training 
was  arduous  and  in  which,  in  the  actual  doing,  the  tests  of  efficiency 
were  manifest  and  severe. 

But  now,  with  the  complete  establishment  of  the  typically  mod- 
ern organization  of  industry,  have  arrived  fundamental  changes  in 
the  organization  of  the  home — changes  to  which  no  adequate  re- 
adjustments have  as  yet  been  devised.  The  flax  and  the  hemp  are  no 
longer  there  for  preparation.  The  spinning  has  migrated  to  the 
factory.  The  weaving  is  done  by  the  great  machines.  The  cutting 
and  the  making  of  garments  have  departed.  The  butter  is  churned 
at  the  creamery.  More  and  more  the  bakeries  are  furnishing  us  with 
our  bread.  Gas  and  electricity  leave  no  room  for  candle-making,  or 
even  for  the  falling  and  the  care  of  lamps.  The  jam,  the  pickles,  and 
the  preserves  we  buy  of  the  grocer.  There  are  no  more  festoons  of 
dried  apples  in  the  attic.  The  smoking  of  the  ham  and  the  bacon  the 
packer  does  for  us,  along  with  the  killing  and  the  cleansing.  There 
is  no  longer  any  leaching  of  ashes  or  boiling  of  soap  to  be  done  in 
the  backyard.  The  steam  laundry  cleans  and  irons  for  us,  and  fades 
out  and  wears  out  for  us,  the  garment  which  the  factory  has  provided 
for  ready  use.  The  electric  sweeper  cleans  our  floors,  the  while 
that  the  day  laborer  runs  it,  and  the  dry-cleaner  and  the  pantatorium 
care  for  our  suits  and  our  gowns.  And  the  mother  no  longer  teaches 
her  children  at  the  knee,  sending  them  instead  to  the  tax-paid  em- 
ployee of  the  schools. 

And  yet  somehow,  with  all  its  occupations  gone,  the  home  still 
retains  its  exterior  seeming  and  organization ;  and  somehow  also  is 
so  busy  a  place  that,  if  it  conform  at  all  to  the  standard  and  ideal  of 
American  life,  it  requires  an  ever-larger  array  of  house-maids  and 
nurse-girls.  Still  our  women  folk  grow  worn  and  tired  with  its 
burdens,  and  if  the  house-maid  fails,  even  desperate.  Ill  health, 
dyspepsia,  and  nervous  breakdown  are  increasingly  feminine  phe- 
nomena. And  along  with  it  all,  a  strange  accompaniment,  there  are 
fewer  and  fewer  children  to  be  reared  as  the  time  of  the  mother 
ought  to  be  more.    Race  suicide  confronts  our  modem  societies. 

It  is  evident  that  the  machine  industry  and  the  cheapened  proc- 
esses of  production  have  taken  away  from  women  in  large  part  their 
fundamental  economic  functions.  *  Things  have  grown  too  cheap  to 
be  done  by  the  old  domestic  time-consuming  methods.  As  mere 
matters  of  dollars  and  cents  production  can  take  place  in  the  home 
only  at  a  cost  greater  than  the  purchase  price  on  the  market.  There 
is  no  place  for  the  home  woman  in  the  industrial  activities  of  the 
present  society. 


64  CURRENT  ECONOMIC  PROBLEMS 

But  something  quite  other  has  been  the  meaning  of  the  new  in- 
dustrial processes  for  the  life  and  the  labor  of  men.  The  new  ma- 
chinery has  served  to  provide  them  with  tools  by  which  vastly  to 
enlarge  the  field  of  their  effort,  and  to  multiply  their  accomplishment 
in  every  single  field.  No  matter  what  the  deficiencies  in  the  organ- 
ization of  all  this  new  power,  men  have  not  grown  idle  or  sluggish. 
They  have  not  forfeited  their  functions,  their  jurisdiction,  their  * 
aspirations,  or  their  accomplishment. 

But  the  history  of  the  race  does  not  indicate  that  to  men  exclu- 
sively belongs  the  duty  or  the  privilege  of  labor,  or  that  the  present 
economic  status  of  women  is  an  adequate  certification  of  progress 
in  civihzation.  If  women  should  not  work,  why  should  men?  If 
self-respecting  man  must  work,  by  what  title  is  it  now  honorific  to 
women  to  be  idle  ?  We  have  arrived  at  an  unfortunate  reversal  of 
an  earlier  institution.  In  early  society,  an  almost  crushing  amount 
of  labor  fell  upon  the  female;  under  modern  conditions  among  the 
fully  civilized  classes  an  unduly  excessive  share  devolves  upon  the 
male. 

/  The  explanation  of  the  existing  situation  is  chiefly  in  modern 
^chnology.  The  fault  is  in  the  failure  of  society  to  work  out  those 
readjustments  by  which  a  significant  share  in  the  world's  work  shall 
be  preserved  for  women,  either  within  the  home  or  outside  of  it. 
When  the  home  is  losing  its  economic  utility,  it  can  be  available  for 
those  men  alone  who,  being  able  to  afford  the  luxury,  are  disposed 
to  pay  the  attendant  price.  The  increasing  expensiveness  of  the 
home  under  modern  conditions,  its  restriction  of  function  to  mere 
consumption  and  spending,  explains  the  progressive  swerving  of 
men  away  from  it,  and  the  derivative  and  increasing  horde  of  home- 
less and  childless  women  outside. 

Women  breadwinners  within  the  home  our  present  American 
life  doubtless  has.  But  of  these  it  holds  true,  as  of  the  women  of 
the  factory,  the  shop,  or  the  street,  that,  although  belonging  by  sheer 
necessity  to  our  American  life,  they  yet  have  no  place  in  that  society 
which  America  holds  as  its  ideal.  They  are  our  unfortunates  among 
women,  in  that  they  have  not  found  each  her  man,  and  attached  him 
to  her  to  work  for  her,  to  shelter  her  from  all  productive  effort,  and 
to  support  her.  For  it  is  the  grievous  fact  that  the  American  ideal 
of  reputable  living  denies  to  women  the  role  of  economic  producer 
and  commiserates  the  girl  who  does  not  marry  into  a  life  of  pecuniary 
ease;  prescribes  as  a  duty  upon  any  self-respecting  man  that  he 
neither  offer  nor  enter  marriage  if  his  wife  need  be  more  than  deco- 
ratively  active ;  and,  if  he  fail  of  this,  insults  her  with  pity  and  him 
with  contempt. 


^  THE  INDUSTRIAL  REVOLUTION  65 

It  is  in  the  cause  of  motherhood  that  we  make  our  protest 
against  the  typical  home  of  the  American  ideal.  The  economic 
dependence  of  women  cannot  be  defended  by  the  test  of  children; 
they  are  in  inverse  ratio  to  the  room  for  them.  The  poor  alone  can 
afford  to  be  prolific. 

But  not  all  housebound  women  would  confess  themselves  to  be 
idle.  Think  how  absorbing  and  complicated  the  keeping  of  the 
home  has  become:  its  meticulous  refinement,  its  ornate  entertain- 
ments, its  furniture  and  bric-a-brac  for  dusting,  its  curtains  for 
cleaning,  its  rugs  for  beating.  Busy  indeed  these  women  will  be — 
but  busy  in  keeping  busy^— absorbed  in  the  empty  competition  of 
modern  housekeeping,  in  the  collection  of  work-compelling  plunder, 
in  the  maintenance  of  exhibition  rooms,  and  in  the  general  annihila- 
tion of  comfort.  The  two  hours'  labor  that  should  suffice  for  all 
rational  daily  needs,  were  there  only  something  else  to  do,  is  devoted 
to  the  preparation  of  mayonnaise  dressings  or  to  the  concoction  of 
snow  puddings,  or  to  other  certification  of  useless  skill.  Dishwash- 
ing, instead  of  coming  thrice  a  week,  comes  three  times  a  day.  The 
laundry  work  piles  up  to  the  proportions  of  a  nightmare.  The  one 
child,  wearied  by  overdressing  and  spoiled  by  fussing  care,  pines  for 
the  forbidden  joys  of  dirt  and  bare  feet.  Acquiescing  in  all  4:his 
futility,  the  housewife  finds  enough  her  mere  labors  of  supervision. 

Meanwhile,  the  man  whose  business  it  is  to  pay  the  bills  is  busy 
enough  in  the  process — too  busy,  indeed,  in  making  the  income  to 
have  either  the  time  or  the  taste  for  the  spending  of  it.  But  no  pity 
is  due  to  this  tired  captain  of  industry,  or  this  busy  moiler  in  trade 
or  finance  for  the  burden  he  carries.  He  may,  no  doubt,  appear  to 
be  a  mere  pack-animal  in  the  service  of  his  family — a  weary  though 
willing  slave  to  their  folly — a  man  solely  occupied  in  canceling  the 
bills  they  are  busy  in  contracting.  But  he  is  aiming  at  his  own  glory. 
To  the  women,  as  helpless  victims  of  the  competition  of  display, 
the  function  of  spending  has  been  delegated.  Institutionally  the 
wife  is  a  mere  agent  in  the  process.  Not  only  must  she,  to  the  de- 
gree that  her  lord  is  wealthy  or  is  aping  the  possessors  of  wealth 
avoid  whatever  remnant  of  useful  activity  is  open  to  her,  lest  the 
suspici6n  of  need  should  attach  to  shame  him ;  but  also,  by  waste  and 
lavish  outlay,  must  she  place  upon  exhibit  and  in  continuous  view 
the  wealth  and  achievements  of  her  master.  In  this  process  of 
certifying  the  fact  of  his  financial  prowess  by  seeming  to  spend 
upon  herself,  she  seems  to  afford  both  motive  and  excuse  for  gaining 
the  wealth.  Such  glory  as  belongs  to  her  part  is  in  being  the  wife 
of  such  a  one,  and  in  the  delusion  that  he  is  making  the  money  for 


66  CURRENT  ECONOMIC  PROBLEMS 

her  spending,  rather  than  that  she  is  spending  it  for  his  glory.  The 
personal  relation  easily  obscures  the  larger  meanings  of  the  institu- 
tional fact. 

E.     THE  EXTENSION  OF  INDUSTRIALISM 
32.     The  Competitive  Victory  of  Western  Culture^^ 

BY  JAMES  BRYCE; 

What  is  it  that  the  traveler  sees  today  in  India,  in  Africa,  in  the 
two  Americas,  in  Australia,  in  the  isles  of  the  Pacific?  He  sees  the 
smaller,  weaker,  and  more  backward  races  changing  or  vanishing 
under  the  impact  of  civilized  man;  their  languages  disappearing; 
their  religious  beliefs  withering;  their  tribal  organizations  dissol- 
ving; their  customs  fading  slowly  away. 

From  the  blending  of  others  with  immigrants  streaming  in,  a 
hybrid  race  is  growing  up  in  which  the  stronger  and  more  civilized 
element  seems  fated  to  predominate.  In  other  cases  people  too 
large  and  powerful  to  lose  their  individuality  are  nevertheless  begin- 
ning to  be  so  affected  by  European  influences  as  to  find  themselves 
passing  mto  a  new  circle  of  ideas  and  a  new  set  of  institutions. 
Change  is  everywhere,  and  the  process  of  change  is  so  rapid  that 
the  past  will  soon  be  forgotten.  It  is  a  past  the  like  of  which  can 
never  recur. 

There  is  one  other  aspect  of  the  present  age  of  the  world  tliat 
has  a  profound  and  novel  meaning  for  the  historian.  The  world  is 
becoming  one  in  an  altogether  new  sense.  More  than  four  centuries 
ago  the  discovery  of  America  marked  the  first  step  in  the  process 
by  which  the  European  races  have  now  gained  dominion  over  nearly 
the  whole  of  the  earth.  The  last  great  step  was  the  partition  of 
Africa  a  little  more  than  twenty  years  ago. 

Now,  almost  every  part  of  the  earth's  surface,  except  the  terri- 
tories of  China  and  Japan,  is  either  owned  or  controlled  by  five  or 
six  European  races.  Eight  Great  Powers  sway  the  political  destinies 
of  the  globe  and  there  are  only  two  other  countries  that  can  be 
thought  of  as  likely  to  enter  after  a  while  into  the  rank  of  the  Great 
Powers.  Similarly  a  few  European  tongues  have  overspread  all  the 
continents  except  Asia,  and  there  it  seems  probable  that  those  Euro- 
pean tongiies  will  before  long  be  learned  and  used  by  the  educated 
classes  in  such  wise  as  to  bring  those  classes  into  touch  with  Euro- 
pean ideas.  It  is  likely  that  by  2000  A.  D.  more  than  nine-tenths 
of  the  human  race  will  be  speaking  less  than  twenty  languages. 

*' Adapted  from  an  address  delivered  before  the  International  Congress 
of  Historical  Studies,  London,  May.  igi3. 


THE  INDUSTRIAL  REVOLUTION  67 

Already  there  are  practically  only  four  great  religions  in  the 
world.  Within  a  century  the  minor  religions  may  be  gone;  and 
possibly  only  three  great  faiths  will  remain.  Those  things  which 
are  already  strong  are  growing  stronger;  those  already  weak  are 
growing  weaker  and  are  ready  to  vanish  away.  Thus,  as  the  earth 
has  been  narrowed  through  the  new  forces  science  has  placed  at 
her  disposal,  and  as  the  larger  human  groups  absorb  and  assimilate 
the  smaller,  the  movements  of  politics,  of  economics,  and  of  thought 
in  each  of  its  regions  become  more  closely  interwoven  with  those 
of  every  other.  Finance,  even  more  than  politics,  has  now  made 
the  world  one  community,  and  finance  is  more  closely  interwoven 
with  politics  than  ever  before. 

World  history  is  tending  to  become  one  history,  the  history  no 
longer  of  many  different  races  of  mankind  occasionally  affecting 
one  another's  fortunes,  but  the  history  of  mankind  as  a  whole,  the 
fortunes  of  each  branch  henceforth  bound  up  with  those  of  the 
others. 

33,     The  Economic  Conflict  of  Western  and  Primitive  Culture 

BY  FRIEDA  S.  MILLER 

Not  once,  since  the  Turks  captured  Constantinople,  has  European 
civilization  been  threatened  by  an  external  force.  Yet,  since  that 
time,  and  by  its  own  volition,  it  has  been  in  constant  contact  with 
non-European  peoples  in  their  own  countries.  Clearly  the  West  was 
not  summoned  by  China  to  establish  an  open-door  policy,  and  the 
American  Indians  invited  no  discovery. 

The  motive  to  European  expansion  may  afford  some  clue  to  its 
possible  effect.  Religious  persecution,  political  differences,  scientific 
curiosity,  all  these  have  played  their  part ;  but  the  persistent  aim  has 
always  been  economic  gain.  The  lure  of  the  guinea  alike  led  Spain 
to  America,  Portugal  around  the  African  cape,  England  to  India 
and  South  Africa,  and  Russia  across  the  snows  to  the  walls  of  China. 
Pecuniary  profit  has  been  the  lodestar  that  has  led  the  West  to  the 
East.  This  motive  is  the  open  sesame  to  an  understanding  of  the 
business  of  the  Occident  in  the  Orient.  It  means,  above  all,  that 
the  "new"  countries,  possessed  of  their  tremendous  resources,  which 
can  be  unlocked  only  by  the  white  man's  magic  key  of  the  machine 
process,  are  to  be  used  for  the  white  man's  profit.  In  its  extreme 
form,  before  civilization  softened  the  formalities,  it  meant  for  the 
natives  slavery  and  transportation  to  distant  lands.  But  such  prac- 
tices have  been  succeeded  by  a  strict  legal  and  moral  code  which 
regulates  the  contact  of  white  man  and  native.    The  white  man  may 


68  CURRENT  ECONOMIC  PROBLEMS 

content  himself  that  his  ritual  has  proved  itself  in  the  Western 
world,  and  even  flatter  himself  that  it  is  the  best  he  has  to  offer  the 
native.  His  long  personal  use  should  enable  him  to  guarantee  its 
efficacy.  Now  what  the  white  man  wants  first  of  all  is  land.  This 
he  sets  about  obtaining  legally.  He  proffers  the  native  beads  or  a 
knife  in  exchange  for  his  title.  When  the  native  chief  accepts,  as 
he  is  likely  to  do,  by  this  act  which  marks  an  exercise  of  .his  own 
free  will  and  judgment,  he  has  contracted  away  the  lands  of  his 
tribe.  No  one  has  been  injured;  since  the  act  was  voluntary,  the 
agreement  extended  to  both  parties,  and  compensation  in  full  was 
rendered.  The  parties,  therefore,  being  legally  bound,  must  be  held 
to  the  performance  of  their  obligations  under  the  law  of  contracts. 

Having  gained  control  of  the  soil,  which  may  mean  railroad  and 
mining  concessions  in  China,  gold  mines  in  South  Africa,  or  sugar 
plantations  in  Hawaii,  and  having  thus  in  his  hands  the  possibilities 
of  pecuniary  gain,  the  white  man's  next  problem  is  to  find  means  of 
developing  this  potential  wealth.  Again  the  conventions  of  the 
Western  world  are  required  to  prove  their  efficacy.  Either  dignity 
of  labor  or  freedom  of  contract  can  be  made  to  fit  the  case.  On  the 
one  hand  there  is  work  in  railroad  building,  mining,  herding  cattle, 
or  what  not,  that  requires  the  doing.  On  the  other  hand  there  are 
hordes  of  able-bodied  natives  who  are  not  productively  employed. 
Proper  consideration  for  the  dignity  of  toil,  therefore,  leaves  the 
white  man  no  alternative  but  to  devise  a  system  for  securing  the 
labor  of  tfie  savage.  A  head  tax  may  be  levied  which  must  be  paid 
in  money.  Or  a  tax  may  be  placed  on  the  native  which  he  can  dis- 
charge in  work.  More  easily,  again  using  the  magic  wand  of  con- 
tract, the  savage  may  be  gotten  in  debt ;  and  surely  he  must  be  held 
responsible  for  obligations  voluntarily  assumed.  The  result  is  the 
permanent  establishment  of  the  wages  system. 

The  nature  and  consequences  of  such  overlordship  can  be  easily 
appreciated.  Economically  the  native  is  regarded  as  a  convenient 
instrument  for  causing  success  to  attend  the  white  man's  venture. 
The  noneconomic  effects  are  also  interesting  and  far-reaching.  The 
coming  of  the  white  man  not  only  makes  a  wage-slave  of  the  native, 
but  demoralizes  him  socially  and  spiritually.  Tribal  life  is  broken  up 
when  sufficient  lands  for  hunting  or  communal  agriculture  are  no 
longer  available.  With  it  comes  the  end  of  the  power  of  chiefs  and 
priests,  the  latter  still  further  undermined  by  the  assiduous  efforts 
of  Christian  missionaries  to  convince  the  "heathen"  of  the  jj^ickedness 
of  their  leaders.  Moreover,  the  native's  observation  of  the  white 
man's  mode  of  life,  with  its  impunity  from  tribal  taboos  and  dis- 
regard of  tribal  sanctions,  destroys  their  validity  for  him.     Finally 


THE  INDUSTRIAL  REVOLUTION  69 

the  whole  primitive  system  of  control  under  which  he  has  lived 
suffers  shipwreck.^* 

All  this  but  makes  the  native  a  more  pliant  instrument,  since  he 
cannot  reconstruct  a  new  system  of  values  to  fit  the  new  situation. 
He  does  not  understand  the  white  man's  object,  or  see  to  what  place 
this  foreign  system  assigns  him.  His  mental  attitude  is  quite  external 
to  the  real  nature  of  the  system  which  is  closing  in  about  him. 
Therefore  he  has  not  the  recourse  against  it  possessed  by  the  wage- 
workers  of  Western  countries,  who,  whatever  their  weakness,  still 
sense  the  drift  of  events  that  is  involving  them.  This  inferior  posi- 
tion is  made  permanent  and  definite  by  the  fact  that  most  of  the 
native  races  which  Western  civilization  has  encountered  can  not  be 
assimilated.  It  is  not  the  purpose  of  Europeans,  even  were  it  possible, 
to  educate  primitive  races  to  a  point  where  they  could  reap  the  profit 
of  the  development  which  their  countries  are  undergoing. 

But  the  results  of  such  a  policy,  naturally  enough,  are  not  limited 
to  the  countries  affected.  To  assure  the  pecuniary  success  which  is 
the  object  of  colonial  expansion,  trade  is  necessary.  If  a  cdlony  is 
cut  off  from  communication  with  the  Western  world,  rapid  pecuniary 
gains  cannot  be  made.  The  settlers  must  supply  their  own  needs, 
thus  establishing  a  self -sufficient  economic  system.  But  it  is  only 
as  a  part  of  a  much  larger  industrial  entity  that  the  potential  re- 
sources of  the  colony  may  be  most  advantageously  utilized.  A  dis- 
position of  the  surplus  abroad  gives  vast  differential  gains.  The 
promoters,  therefore,  will  strive  to  make  the  colony  a  part  of  the 
existing  industrial  system.  In  course  of  time  the  industrial  aris- 
tocracy will  live  under  a  social  system  and  possess  a  civilization  like 
that  of  the  Western  world.  The  natives,  too,  will  live  under  such  a 
system,  but  as  a  permanent  proletariat.  Thus  the  West  with  its  cul- 
ture is  reaching  out  to  grasp  lands  held  by  primitive  peoples,  and  to 
reduce  its  complex  and  different  scheme  of  life  to  its  own  system  of 
values. 

But  the  process  must  inevitably  react  upon  the  structure  of 
Western  society.  The  spirit  of  colonial  life  must  influence  the 
mother-country.  Colonial  pecuniary  interests  must  find  their  part 
in  Western  politics.  The  easier  life  of  the  tropics  must  have  its 
telling  effect  on  character,  and  hence  affect  the  morale  of  the  home 
people.    The  sense  of  empire,  too,  exercises  a  peculiar  psychological 

**Compare  the  plaint  of  the  natives  in  Rhodesia,  as  voiced  by  Sir  Richard 
Martin,  in  his  official  report.  "The  natives  practically  said,  'Our  country  is 
gone  and  our  cattle;  we  have  nothing  to  live  for.  Our  women  are  deserting 
us ;  the  white  man  does  as  he  likes  with  them.  We  are  the  slaves  of  the 
white  man ;  we  are  nobody  and  have  no  rights  or  laws  of  any  kind.' " — 
Hobson,  Imperialism;  A  Study,  281,  note. 


70  CURRENT  ECONOMIC  PROBLEMS 

influence  which  cannot  be  analyzed.  It,  also,  threatens  the  home 
wage-worker  with  competition  of  cheap  foreign  labor.  Such  are 
the  results  of  the  competition  of  Western  and  primitive  culture, 
when  the  contest  is  fought  on  the  territory  of  the  latter,  and  the 
weapons  are  all  of  Western  fashioning. 

34.     The  Export  of  Speculative  Capital  and  War^" 

BY  AI.VIN  S.  JOHNSON 

Let  US  look  somewhat  closely  upon  the  structure  of  capital  as  an 
economic  force.  We  shall  find  that  it  embraces  two  elements  differ- 
ing widely  in  character.  The  one,  which  we  may  denominate  capital 
proper,  is  characterized  by  cautious  calculation,  but  a  preference  for 
sure,  if  small,  gains  to  dazzling  winnings.  The  other,  which  we 
may  call  speculative  enterprise,  is  characterized  by  a  readiness  to 
take  risks,  a  thirst  for  brilliant  gains. 

Capital  thrives  best  in  a  settled  order  of  society,  where  the  risks 
of  loss  are  at  a  minimum.  It  accepts  favors  from  government,  to  be 
sure,  but  politics  is  no  part  of  its  game;  peace  and  freedom  from 
disturbing  innovations  are  its  great  desiderata.  Speculative  enter- 
prise, on  the  other  hand,  thrives  best  in  the  midst  of  disorder.  Its 
favorite  field  of  operations  is  the  fringe  of  change,  economic  or 
political.  It  delights  in  the  realm  where  laws  ought  to  be,  but  have 
not  yet  made  their  appearance.  To  control  the  course  of  legal  evolu- 
tion, to  retard  or  divert  it,  are  its  favorite  devices  for  prolonging  the 
period  of  rich  gains.  Politics,  therefore,  is  an  essential  part  of  the 
game  of  speculative  enterprise. 

At  the  outset  of  the  modern  era,  speculative  enterprise  quite 
overshadowed  capital  proper.  Colonial  trade,  governrnent  contracts, 
domestic  monopolies  were  the  chief  sources  of  middle-class  fortunes. 
But  with  the  progress  of  industry,  slow,  plodding  capital  has  been 
able  steadily  to  encroach  upon  the  field  of  enterprise.  In  our  own 
society  the  promoter  of  railway,  and  public  utilities,  the  exploiter  of 
public  lands,  the  trust  organizer,  are  as  prominent  relatively  as  in  any 
modern  nation.  Qantitatively,  however,  their  interests  are  greatly 
inferior  to  those  of  the  trader,  manufacturer,  banker,  small  investor, 
and  the  farmer,  to  whom  a  10  per  cent  return  is  a  golden  dream  and 
a  20  per  cent  one  a  temptation  of  the  Evil  One. 

In  a  new  country  of  vast  natural  resources  there  is  sufficient 
scope  for  both  speculative  enterprise  and  capital  proper.  The  United 
States  has  been  such  a  country.    There  was  easy  money  enough  for 

"Adapted  from  "The  War — By  an  Economist,"  in  the  Unpopular  Review, 
II,  420-428.     Copyright  (1914). 


THE  INDUSTRIAL  REVOLUTION  71 

all  men  of  shrewdness  and  resolution  possessed  of  the  necessary 
initial  stake — public  forests  to  be  leveled,  railways  to  be  built  or 
wrecked,  trusts  to  be  organized,  cities  to  be  provided  with  public 
utilities.  -But,  in  view  of  our  changing  attitude,  this  easy  money 
appears  to  be  in  danger  of  being  locked  up.  Already  we  are  begin- 
ning to  hear  murmurs  that,  in  view  of  the  popular  hostility  to  wealth, 
it  will  be  necessary  for  American  capital  to  look  for  foreign  invest- 
ments. Not  foreign  investments  in  England,  France,  and  Germany, 
where  government  is  efficient  and  capital  proper  prevails,  but  foreign 
investments  in  the  undeveloped  countries,  in  a  Land  of  the  Morning, 
"east  of  Suez." 

The  progress  of  modern  industrial  society,  with  its  parallel  devel- 
opment of  the  art  of  government,  tends  to  the  exclusion  of  specula- 
tive capital,  and  its  concentration  in  the  tropical  and  subtropical 
belts.  In  the  older  societies  this  process  has  been  in  operation  for  a 
considerable  time.  For  generations  British  citizens  have  been  taught 
to  look  to  Asia,  Africa,  and  America  for  sudden  wealth.  Although 
Germany  had  a  slower  start,  the  efficiency  of  government  has  rec- 
ommended new  countries  to  those  looking  for  brilliant  gains.  In  a 
generation  much  of  our  speculative  capital  will  be  employed  in 
colonial  exploitation. 

Capital,  it  is  often  said,  knows  no  such  thing  as  patriotism.  This 
may  be  true  of  the  cautious,  colorless  capital  of  industry  and  finance. 
But  an  intense  patriotism  is  avowed  by  J.  J.  Hill,  by  the  DuPonts,  by . 
the  Guggenheims.  Most  intense  of  all  is  the  patriotism  of  the  capi- 
talist whose  interest  lies  in  the  twilight  zone  of  the  barbaric  belt. 
Purer  expressions  of  concern  for  America's  future  than  those  now 
issuing  from  the  lips  of  concessionaries  in  Mexico  you  never  hear. 
We  are  all  moved  by  the  grandiose  African  dream  of  Cecil  Rhodes : 
"all  red" — i.e.,  British — a  British  heart  within  every  black  skin  from 
the  Cape  to  Cairo.  The  case  is  typical  of  the  capitalist  speculator 
abroad.  By  interest  the  concessionary  capitalist  is  a  patriot.  He 
needs  his  country  in  his  business.  But  this  is  no  impeachment  of  his 
patriotism.  His  type  is  reckless  and  therefore  idealistic.  His  private 
interests  become  submerged  in  his  imperialistic  ambitions.  Patriot- 
ism has  always  burned  more  brightly  in  border  provinces  than  in 
the  heart  of  the  national  territory.  It  is  natural,  then,  that  patriotism 
should  be  still  more  intense  in  those  extensions  of  the  national 
domain  represented  by  permanent  investments  abroad. 

Now  patriotism  compounded  with  financial  interests  usually  pro- 
duces detestation  for  the  corresponding  alien  compound.  Speculators 
in  South  America  and  the  Orient  meet  their  rivals  from  other 
nations  and  hate  them  heartily.     Those  speculators  are  the  nerve 


72  CURRENT  ECONOMIC  PROBLEMS 

ends  of  modern  industrial  nationalism,  and  they  are  specialized  to 
the  work  of  carrying  sensations  of  hate.  F'or  the  present  we  have 
few  nerves  of  this  kind.  They  have  conveyed  to  us  only  a  vague 
impression  of  the  uneasiness  felt  by  England  and  France  over  the 
German  advance  in  the  colonial  field.  And  German  speculators, 
thwarted  in  their  designs  by  the  English  and  French,  have  con- 
tributed to  the  popular  feeling  that  Germany  must  fight  for  what 
she  gets. 

The  capitalist  speculator,  even  at  home,  enjoys  a  power  over  the 
popular  imagination  and  a  political  influence  quite  incommensurate 
with  the  extent  of  his  interests.  When  the  seat  of  his  operations 
is  a  foreign  territory,  whence  flow  back  reports  of  his  great  achieve- 
ments— achievements  that  cost  us  nothing,  and  that  bring  home  for- 
tunes to  be  taxed  and  spent  among  us — his  social  and  political  influ- 
ence attains  even  more  exaggerated  proportions.  And  this  is  the 
more  significant  since  his  relations  with  government  are  concentrated 
upon  the  most  sensitive  of  government  organs,  the  foreign  office. 

When  diplomatic  questions  concerning  the  non-industrial  belt 
arise,  and  most  diplomatic  questions  concern  this  belt,  the  voice  of 
the  concessionaries  is  heard  at  the  council  of  state.  The  voice  is 
the  most  convincing  because  of  the  patriotism  that  colors  its  expres- 
sion of  interest.  More  important,  the  ordinary  conduct  of  exploita- 
tive business  in  an  undeveloped  state  keeps  the  concessionary  in  con- 
stant relation  with  the  consular  and  diplomatic  officers  established 
there.  In  a  sense  such  officers  are  the  concessionary's  agents,  yet 
their  communications  to  the  home  office  are  the  material  out  of  which 
diplomatic  situations  are  created. 

It  is  accordingly  idle  to  suppose  that  exploitative  capital  in  for- 
eign investments  weighs  in  foreign  policy  only  as  an  equal  amount  of 
capital  at  home.  In  view  of  the  conditions  mentioned,  a  small  in- 
vestment may  prove  a  great  menace  to  the  peace  of  nations.  For 
years  Germany,  Russia,  England,  and  France  have  been  brought  to 
the  belief  that  something  very  vital  turns  upon  the  control  of  the 
Land  of  the  Morning.  Indeed,  the  whole  civilized  world  has  been 
seduced  into  accepting  this  belief.  Yes,  something  very  vital  for  ex- 
ploitative capital.    Out  of  such  delusions  spring  wars. 

It  is  the  interest  of  exploitative  capital  that  makes  the  Morning 
Land,  Mexico,  China,  and  Africa  rotten  stones  in  the  arch  of  civiliza- 
tion. But  for  exploitative  capital,  these  regions  might  remain  back- 
ward, socially  and  politically:  this  would  not  greatly  concern  any 
industrial  nation,  except  so  far  as  it  responded  to  a  missionary  im- 
pulse. The  backward  states,  however,  afford  possibilities  of  sudden 
wealth ;  and,  since  this  is  the  case,  they  must  attract  exploiters,  who 


THE  INDUSTRIAL  REVOLUTION  73 

must  seek  and  obtain  the  backing  of  their  home  governments,  with 
resultant  international  rivalry,  hostility,  war. 

In  a  short  time  there  will  be  one  new  element  in  the  situation, 
new,  at  any  rate,  to  us.  In  a  generation  our  strong  men  of  specula- 
tive finance  will  be  established  in  the  undeveloped  countries ;  conces- 
sions will  figure  conspicuously  among  the  items  of  our  national 
wealth.  The  foreign  contingent  of  our  capital  will  join  in  the  battle 
for  exploitative  advantages.  And  who  shall  say  that  our  country 
may  not  be  a  protagonist  of  the  next  great  war?  One-half  of  i  per 
cent  of  our  capital  just  failed  of  forcing  us  to  subjugate  Mexico. 

If  we  could  confidently  predict  the  industrialization  of  the  back- 
ward countries,  we  should  be  able  to  foresee  an  end  of  this  one  most 
fruitful  of  all  sources  of  international  strife.  But  China  will  not 
be  industrialized  for  a  generation  at  least;  and  many  generations 
must  elapse  before  the  tropics  are  concession-proof.  Accordingly 
the  one  hope  for  universal  peace  would  appear  to  lie  in  the  possibility 
of  divorcing,  in  the  popular  consciousness,  the  concessionary  interest 
from  the  national  interest. 

The  concession  and  the  closed  trade  are  the  fault  lines  in  the 
crust  of  civilization.  Solve  the  problem  of  the  concession  and  the 
closed  trade,  the  earth  hunger  will  have  lost  its  strongest  stimulus, 
and  peace,  when  restored,  may  abide  throughout  the  world. 


Ill 

SOCIAL  CONTROL  IN  MODERN  INDUSTRIALISM 

Our  historical  study  has  shown  that  our  "system"  as  a  whole  is  in  process 
of  development.  But  novelty  and  goodness  are  not  one ;  the  newer  society 
because  of  its  newness  is  not  perforce  better  than  the  old;  our  world,  though 
transformed,  has  not  of  necessity  become  a  better  world  in  which  to  live. 
Movement  there  always  is ;  but  movement  may  or  may  not  mark  an  advance. 
This  possible  antithesis  between  development  and  progress  raises  perhaps 
the  most  important  of  all  current  problems,  for  in  its  terms  other  problems 
must  find  their  "solution."  Should  society  allow  its  development  to  take  its 
"natural  course,"  or  should  it  attempt  to  control  it? 

No  absolute  answer  can  be  given  to  so  universal  a  question.  If  the  na- 
tural course  gives  evidence  of  being  the  path  we  would  mark  out,  obviously 
we  should  keep  our  hands  off.  If  for  such  a  reason  laissez  faire  is  deliber- 
ately chosen,  paradoxical  as  it  seem,  it  becomes  merely  a  convenient  instru- 
ment of  social  control.  But  if  the  "system  is  going  awry,"  what  shall  we  do? 
Just  as  obviously  we  should,  to  the  extent  of  our  intelligence  and  power, 
attempt  to  control  the  process. 

But  can  we  control  so  complex  and  many-sided  a  thing  as  social  develop- 
ment? Unfortunately  to  this  question  we  cannot  give  an  unqualified  affirma- 
tive. Many  social  "forces"  are  beyond  our  ken  and  power;  others,  of  which 
we  have  some  knowledge,  cannot  be  reached  by  any  contrivances  which  we 
have  yet  perfected;  given  programs  promising  definite  results  have  the  per- 
versity to  produce  undreamed  of  complications ;  and  immediate  consequences 
have  fallen  into  the  disagreeable  habit  of  distracting  our  attention  from  more 
ultimate  and  important  results.  It  seems,  therefore,  that  the  wholesale  pre- 
scription of  "remedies"  and  the  amateurish  tinkering  with  parts  are  likely  to 
prove  dangerous.  Yet,  if  we  are  sufficiently  conscious  of  the  limitations  un- 
der which  we  are  working,  we  can  do  something  toward  directing  the  move- 
ment. We  know  something  of  the  elements  involved;  we  have  had  much 
experience  that  should  stand  us  in  some  stead;  and  we  have  evolved  some 
very  remarkable  agencies  of  control.  If  we  proceed  cautiously,  make  our 
programs  flexible,  and  quickly  change  our  procedure  to  meet  the  unexpected 
contingencies  which  are  inevitable,  there  is  reason  for  faith  in  our  ability 
eventually  to  accomplish  much.  If  we  essay  the  task,  we  shall  need  a  knowl- 
edge of  the  means  of  control,  a  theory  of  the  use  of  these  means,  and  a  con- 
sciousness of  the  "end"  for  which  they  are  used.  Let  us  consider  these  in 
turn. 

Even  if  our  desires  be  quite  modest,  they  will  necessitate  the  use  of 
numerous  and  varied  means  of  control.  The  changes  which  we  wish  to  effect 
may  be  in  the  structure  of  society,  in  institutions,  in  activities,  or  in  values; 
they  may  call  for  immediate  and  mechanical  action  or  they  may  necessitate 
slow  and  gradual  adaptations;  they  may  affect  almost  the  whole  of  society 
or  may  immediately  touch  only  a  single  aspect  of  life.  For  these  and  a 
myriad  other  uses  instruments  of  social  control  are  available.  The  state  can 
be  used  to  secure  quick  mechanical  changes;  the  school  and  the  church  can 
be  used  slowly  to  effect  more  gradual  and  organic  adaptations ;  the  labor  union, 

74 


PROBLEM  OF  SOCIAL  CONTROL  75 

bj'  sharp,  incisive  action,  can  immediately  further  the  interest  of  a  group; 
the  interest  of  a  like  group  may  gradually  be  advanced  by  a  voluntary  asso- 
ciation using  more  peaceful  methods ;  press  and  public  opinion  can  reach 
a  large  part  of  society;  occupational  associations  and  codes  of  ethics  can 
exercise  a  control  over  particular  groups;  and  convention  and  tradition, 
through  their  prohibitions  and  inhibitions,  can  effectively  direct  the  lives  and 
activities  of  the  individuals.  Each  of  these  agencies  in  its  own  way  can  be 
used  to  make  the  "system"  somewhat  different.  Because  of  the  multiplicity, 
variety,  and  efficiency  of  these  agencies— despite  the  gravity  of  our  ignorance 
— we  could  not  escape  social  control  if  we  would. 

Our  theory  of  the  use  of  these  "forces"  has  been  very  gradually  built  up, 
and  as  yet  is  far  from  complete.  During  most  of  the  nineteenth  century,  when 
"the  country  was  in  a  stage  of  increasing  returns,"  when  self-reliance  was 
dominant,  and  when  men  dared  not  meddle  with  the  rising  machine-system 
which  they  very  imperfectly  understood,  the  dominant  theory  was  that  of 
laissez-faire.  This  theory  overlooked  entirely  the  influence  exerted  by 
agencies  other  than  the  state,  as  well  as  a  large  number  of  active  functions 
performed  by  government,  such  as  the  protection  of  property  and  the  main- 
tenance of  contract.  At  present  the  hold  of  individualistic  theory  is  weaken- 
ing. The  frontier  is  gone;  we  are  confronted  by  the  grave  problems  of  a 
mature  society;  we  are  less  prone  to  attribute  success  or  failure  to  personal 
merit  or  demerit ;  and  we  talk  of  "social  conditions"  and  "inequality  of  oppor- 
tunity." All  of  this  inclines  us  to  depend  more  upon  authority,  and  threatens 
a  radical  extension  of  state  activity.  But  there  are  potent  checks  upon  this 
attitude.  The  interpretation  of  our  constitution  still  proceeds  from  individ- 
ualistic assumptions ;  the  pecuniary  organization  of  society  still  gives  great 
weight  to  the  views  of  the  owners  of  "vested  wealth" ;  and  in  many  places 
a  spirit  of  abandon  in  legislation  is  doing  much  to  discredit  state  interference. 
But  we  are  quite  consciously  coming  to  complement  our  theory  of  the  prov- 
ince of  government  with  a  theory  of  the  use  of  other  agencies  of  control. 
For  we  are  learning  that  we  must  pay  for  what  we  get,  that  legislation  can- 
not produce  Utopias,  that  good  is  achieved  rather  than  acquired,  and  that 
the  less  conspicuous  agencies  of  control  are  as  certain  as  they  are  slow. 

A  consciousness  of  the  end  for  which  these  means  are  used  is  hardest  for 
us  to  acquire.  But,  difficult  as  the  task  is,  we  must  realize  that,  if  we  attempt 
social  control  we  must  know  what  we  are  about ;  we  must  have  a  tentative 
goal;  we  must  appreciate  the  "end"  at  which  we  are  aiming.  To  achieve 
that  end  our  proposals  must  fit  together  into  consistent  programs;  the  in- 
struments of  control  which  we  use  must  complement  each  other.  This  does 
not  mean  that  there  must  be  no  elements  of  antagonism  in  the  system,  but 
rather  that  there  must  not  be  the  spoiled  work  which  comes  from  the  con-" 
fused  counsel  whose  origin  is  in  dealing  with  problems  in  isolation.  Con- 
sciousness of  the  "end"  also  involves  looking  beyond  immediate  proposals. 
Beyond  conflicting  proposals,  seemingly  unimportant,  lie  powerful  social 
theories,  quite  contradictory  in  the  kind  of  societies  they  tend  to  produce. 
In  many  problems,  therefore,  the  ultimate  issue  is  between  different  systems. 
Shall  our  ideal  be  that  of  a  personal  and  industrial  feudalism,  an  individualistic 
America  of  the  nineteenth  century,  a  socialized  Ge^many  of  the  Hohen- 
zoUerns,  an  idealized  and  Marxianized  state,  or  something  else?  Upon  our 
conception  of  the  ideal  state  toward  which  "progress"  should  carry  us  depends 
our  "solution"  of  the  problems  which  we  are  about  to  discuss. 


76  CURRENT  ECONOMIC  PROBLEMS 

A.     THE  NATURE  OF  PROGRESS 
35.     What  Is  Progress?^ 

BY  JAMES  BRYCE 

When  we  say  that  man  has  advanced,  or  is  advancing,  of  what 
lines  of  advance  are  we  thinking?  The  Hnes  of  movement  are  really 
as  numerous  as  are  the  aspects  of  man's  nature  and  the  activities 
which  he  puts  forth.  Taking  his  physical  structure,  is  mankind  on 
the  whole  becoming  stronger,  healthier,  less  injured  by  habits  which 
depress  nervous  and  muscular  forces,  and  are  the  better  stocks  of 
men  increasing  faster  than  the  inferior  stocks?  Considered  as  an 
acquisitive  being,  has  man  more  of  the  things  that  make  for  comfort, 
more  food  and  clothing,  better  dwellings,  more  leisure?  Intellec- 
tually regarded,  has  he  a  higher  intelligence,  more  knowledge  and 
opportunities  for  acquiring  knowledge,  more  creative  capacity,  more 
perception  of  beauty  and  susceptibility  to  aesthetic  pleasures?  Con- 
sidered in  his  social  relations,  has  he  more  personal  freedom,  is  he 
less  exposed  to  political  oppression,  has  he  fuller  security  for  life 
and  property,  are  there  more  or  less  order  and  concord  within  each 
community,  more  or  less  peace  between  nations?  Lastly,  is  man 
improving  as  a  moral  being?  Is  there  more  virtue  in  the  world, 
more  sense  of  justice,  more  sympathy,  more  kindliness,  more  of  a 
disposition  to  regard  the  feelings  and  interests  of  others  and  to  deal 
gently  with  the  weak?  In  each  and  all  of  these  departments  there 
may  be  progress,  but  not  necessarily  the  same  rate  of  progress,  and 
we  can  perfectly  well  imagine  a  progress  in  some  points  only,  accom- 
panied by  a  stagnation  or  even  a  decline  in  other  points. 

When  we  talk  of  the  progress  of  the  world,  do  we  mean  an  ad- 
vance in  all  these  respects,  or  only  in  some,  and  if  so,  in  which  of 
them?  If  in  all  of  them,  which  are  the  most  typical  and  the  most 
significant?  Suppose  there  has  been  an  advance  in  some,  and  in 
others  stagnation  or  retrogression,  how  shall  we  determine  which 
are  the  most  important,  the  most  fraught  with  promise  or  discourage- 
ment ?  An  examination  of  the  language  of  popular  writers  indicates 
that  the  current  conception  has  been  seldom  analyzed.  Such  writers 
have  seemed  to  haA  e  assumed  that  an  improvement  in  some  aspects 
of  human  life  means  an  improvement  in  all,  perhaps  an  improvement 
tc  something  like  the  same  extent.  Another  question  suggests  itself. 
Is  the  so-called  Law  of  Progress  a  constant  one?  Suppose  its  action 
in  the  past  to  have  been  proved,  can  we  count  upon  its  continuing 

^Adapted  from  an  article  in  the  Atlantic  Monthly,  C,  147.  Copyright 
(1907). 


PROBLEM  OF  SOCIAL  CONTROL  77 

in  the  future,  or  may  the  causes  to  which  its  action  has  been  due 
some  time  or  other  come  to  an  end?  I  pass  over  other  points  that 
might  be  raised.  It  is  enough  to  have  shown  in  how  vague  a  sense 
the  current  term  has  been  used. 

36.     Evolution  or  Progress?^ 

BY  L.  T.  HOBHOUSE 

I  use  the  term  "evolution"  in  regard  to  human  society,  and  also 
the  term  "progress."  This  should  imply  that  there  is  some  differ- 
ence between  them.  By  evolution,  I  mean  any  sort  of  growth;  by 
social  progress,  the  growth  of  social  life  in  respect  to  those  qualities 
to  which  human  beings  attach  or  can  rationally  attach  value.  Social 
progress,  then,  is  only  one  among  many  possibilities  of  social  evolu- 
tion. At  least  it  is  not  to  be  assumed  that  every  and  any  form  of 
social  evolution  is  also  a  form  or  stage  in  social  progress.  For 
example,  the  caste  system  is  a  product  of  social  evolution,  and  the 
more  rigid  and  narrow  the  caste,  the  more  complex  the  hierarchy, 
the  more  completely  has  the  caste  system  evolved.  But  most  of  us 
would  question  very  strongly  whether  it  could  be  considered  in  any 
sense  a  phase  of  social  progress.  So  again  there  is  at  the  present 
day  a  vigorous  evolution  of  cartels,  monopolies,  rings  and  trusts; 
there  is  an  evolution  of  imperialism,  of  militarism,  of  socialism,  of 
a  hundred  tendencies  as  to  the  good  or  evil  of  which  people  differ. 

The  fact  that  a  thing  is  evolving  is  no  proof  that  it  is  good ;  the 
fact  that  society  has  evolved  is  no  proof  that  it  has  progressed.  The 
point  is  important  because  under  the  influence  of  biological  con- 
ceptions the  two  ideas  are  often  confused,  and  the  fact  that  human 
beings  have  lived  under  certain  conditions  is  taken  as  proof  of  the 
value  of  those  conditions,  or  perhaps  as  proving  the  futility  of  ethi- 
cal ideas  which  run  counter  to  evolutionary  processes.  Thus  in  a 
recent  article  I  find  a  contemptuous  reference  to  "the  childlike 
desire  to  make  things  fair,"  which  is  "so  clearly  contrary  to  the 
order  of  the  universe  which  progresses  by  natural  selection."  In 
this  brief  remark  you  will  observe  two  immense  assumptions,  and 
one  stark  contradiction.  The  first  assumption  is  that  the  universe 
progresses — not  humanity,  observe,  nor  the  mass  of  organic  beings, 
nor  even  the  earth,  but  the  universe.  The  second  is  that  it  pro- 
gresses by  natural  selection,  a  hypothesis  which  has  not  yet  ade- 
quately explained  the  bare  fact  of  the  variation  of  organic  forms 
on  the  surface  of  the  earth.  The  contradiction  is  that  progress  is 
incompatible  with  fairness,  the  basic  element  in  all  judgments  of 

^Adapted  from  Social  Evolution  and  Political  Theory,  7-25.     Copyright 
by  the  Columbia  University  Press    (iQil). 


78  CURRENT  ECONOMIC  PROBLEMS 

value,  so  that  we  are  called  upon  to  recognize  as  valuable  that  by 
which  our  fundamental  notions  of  value  are  set  at  naught. 

By  studying  certain  sides  of  organic  process  people  arrive  at  a 
particular  hypothesis  of  the  nature  of  the  process.  They  erect  this 
hypothesis  into  an  universal  and  necessary  law,  and  straightway 
call  upon  everyone  else  to  acknowledge  the  law  and  conform  to 
it  in  action.  They  do  not  see  that  they  have  passed  from  one  sense 
of  law  to  another,  that  they  have  confused  a  generalization  with  a 
command,  and  a  statement  of  facts  with  a  principle  of  action.  They 
accordingly  miss  the  starting  point  from  which  a  distinct  conception 
of  progress  and  its  relation  to  human  effort  becomes  possible.  But 
for  any  useful  theory  of  the  bearing  of  evolution  on  social  effort 
this  conception  is  vital.  We  can  get  no  light  upon  the  subject  un- 
less we  begin  with  the  clear  perception  that  the  object  of  social 
effort  is  the  realization  of  ends  to  which  human  beings  can  ration- 
ally attach  value,  that  is  to  say,  the  realization  of  ethical  ends ;  and 
this  being  understood,  we  may  suitably  use  the  term  progress 
of  any  steps  leading  towards  such  realization. 

Our  conclusion  so  far  is  that  the  nature  of  social  progress  can- 
not be  determined  by  barely  examining  the  actual  conditions  of 
social  evolution.  Evolution  and  progress  are  not  the  same  thing. 
They  may  be  opposed.  They  might  even  be  so  fundamentally  op- 
posed that  progress  would  be  impossible. 

Because  of  the  influence  of  biological  notions  on  social  and 
economic  thought,  one  phase  of  the  Darwinian  theory  must  be  noted. 
The  main  effect  of  his  work  in  the  world  of  science  was  to  generate 
the  conception  of  the  progress  of  organic  forms  by  means  of  a 
continuous  struggle  for  existence  wherein  those  best  fitted  by 
natural  endowment  to  cope  with  the  surroundings  would  tend  to 
survive.  In  our  field,  after  Darwin,  it  began  to  be  held  that  man, 
in  spite  of  his  philosophy,  was  still  an  animal,  still  subject  to  the 
same  laws  of  reproduction  and  variation,  still  modifiable  in  the 
same  manner  by  the  indirect  selections  of  the  individuals  best 
fitted  to  their  environment.  The  biological  social  philosopher  had 
not  to  trouble  himself  about  what  was  best ;  nor,  like  the  social 
investigator,  to  remain  in  doubt  as  to  the  broadest  principles  regu- 
lating the  life  of  society.  On  both  these  questions  his  doubts  were 
already  solved  by  what  he  had  learned  in  biology  itself.  The  best 
was  that  which  survived,  and  the  persistent  elimination  of  the  unfit 
was  the  one  method  generally  necessary  to  secure  the  survival  of 
the  best.  Armed  with  this  generalization  he  found  himself  able 
to  view  the  world  at  large  with  much  complacency. 

To  him  life  was  constantly  and  necessarily  growing  better.  In 
every  species  the  least  fit  were  always  being  destroyed  and   the 


PROBLEM  OF  SOCIAL  CONTROL  79 

standard  of  the  survivors  proportionately  raised  No  doubt  there 
remained  in  every  society  many  features  which  at  first  sight  seemed 
objectionable.  But  here  again  the  evolutionist  was  in  the  happy 
position  of  being  able  to  verify  the  existence  of  a  soul  of  goodness 
in  things  evil.  Was  there  acute  industrial  competition?  It  was 
the  process  by  which  the  fittest  came  to  the  top.  Were  the  losers 
in  the  struggle  left  to  welter  in  dire  poverty?  They  would  the 
sooner  die  out.  Were  housing  conditions  a  disgrace  to  civilization  ? 
They  were  the  natural  environment  of  an  unfit  class,  and  the  means 
whereby  such  a  class  prepared  the  way  for  its  own  extinction.  Was 
infant  mortality  excessive?  It  weeded  out  the  sickly  and  the  weak- 
lings. Was  there  pestilence  or  famine?  So  many  more  of  the 
unfit  would  perish .  Did  tuberculosis  claim  a  heavy  toll  ?  The  tuber- 
cular germs  are  great  selectors  skilled  at  probing  the  weak  spots 
of  living  tissue.  Were  there  wars  and  rumors  of  wars?  War 
alone  would  give  to  the  conquering  race  its  due,  the  inheritance  of 
the  earth.  In  a  word  the  only  blot  that  the  evolutionist  could 
see  upon  the  picture  was  the  "maudlin  sentiment"  which  seeks  to 
hold  out  a  hand  to  those  who  are  down.  The  one  sinner  against 
progress  is  the  man  who  tries  to  save  the  lamb  from  the  wolf. 
Could  we  abolish  this  imscientific  individual,  the  prospects  of  the 
world  would  be  unclouded. 

Yet,  before  we  apply  biological  conceptions  to  social  affairs,  we 
generally  suppose  that  the  highest  ethics  is  that  which  expresses 
the  completest  mutual  sympathy  and  the  most  highly  evolved 
society  that  in  which  the  efforts  of  its  members  are  most  completely 
coordinated  to  common  ends,  in  which  discord  is  most  fully  sub- 
dued to  harmony.  Accordingly  we  are  driven  to  one  of  two  alter- 
natives. Either  our  valuations  are  completely  false,  our  notions 
of  higher  or  lower  unmeaning,  or  progress  does  not  depend  upon 
the  naked  struggle  for  existence.  The  biologist  would  cheerfully 
accept  the  first  alternative.  As  we  have  already  seen,  he  is  dis- 
posed to  tell  us  that  we  vainly  seek  to  distort  truth  by  importing 
our  ethical  standards.  He  is  quite  ready  to  insist  that  we  must 
subordinate  our  judgments  of  value  to  the  survival  test.  We  must 
judge  good  that  which  succeeds.  Unfortunately  for  him  at  that 
stage  his  whole  theory  becomes  a  barren  tautology.  Progress  now 
in  his  view  results  from  the  survival  of  the  fittest,  because  progress 
is  the  process  wherein  the  fittest  survive.  Again  it  is  always  the 
fittest  who  survive,  because  the  fact  of  their  survival  proves  their 
fitness 


8o  CURRENT  ECONOMIC  PROBLEMS 

37.     The  Criteria  of  Progress 

BY  JAMES  BRYCE 

In  our  study  of  the  supposed  forward  movement  of  mankind,  let 
us  begin  with  two  comparatively  easy  lines  of  inquiry :  the  physical 
characteristics  of  the  human  species,  and  the  conditions  under  which 
the  species  has  to  live ;  and  let  us  see  what  conclusions  can  be  reached 
by  examining  these. 

Additions  to  the  number  of  the  human  race  are  popularly  treated 
as  if  they  were  an  undoubted  benefit.  We  see  every  nation  and 
every  community  regarding  its  own  increase  as  something  to  be 
proud  of.  But  is  the  increase  of  the  race  any  gain  to  the  race?  The 
population  of  Europe  is  three  or  four  times,  and  that  of  North 
America  twenty  times,  as  large  as  it  was  two  centuries  ago.  This 
proves  that  there  is  much  more  food  available  for  the  support  of 
life,  much  more  production  of  all  sorts  of  commodities,  and  in  par- 
ticular an  immense  increase  in  the  area  of  land  used  for  producing 
food,  with  an  improvement  in  the  methods  of  extracting  food  from 
the  land.  So  the  growth  of  a  city  like  Boston  or  Chicago  proves 
that  there  has  been  an  immense  increase  in  industry.  Men  work 
harder,  or  at  any  rate  more  efficiently,  and  have  far  better  appliances 
for  production  at  their  command. 

Whether  they  live  happier  lives  is  another  matter.  It  used  to  be 
said  that  he  who  made  two  ears  of  corn  grow  where  only  one  ear 
had  grown  before  was  a  benefactor  to  the  race.  Is  that  necessarily 
so?  The  number  of  men  who  can  live  off  the  soil  is  larger,  but  the 
men  need  not  be  better  off.  If  there  is  more  food,  there  are  also 
more  mouths.  Their  lives  may  be  just  as  hard,  their  enjoyments 
ju.st  as  limited.  Some  parts  of  the  earth  are  already  too  crowded 
for  comfort.  The  notion  that  population  is  per  se  a  benefit  and  a 
mark  of  progress  seems  to  be  largely  a  survival  from  a  time  when 
each  tribe  or  city  needed  all  the  arms  it  could  maintain,  to  wield 
sword  and  spear  against  its  enemies.  "As  arrows  in  the  hands  of  a 
giant,  even  so  are  young  children,"  says  the  Psalmist;  and  when 
men  are  needed  to  fight  against  the  Hittites,  this  is  a  natural  reflec- 
tion. It  may  also  be  due  partly  to  an  unthinking  association  between 
growth  and  prosperity. 

Let  us  pass  to  quality.  The  most  remarkable  fact  of  the  last 
few  centuries  has  been-  the  relatively  more  rapid  growth  of  those 
whom  we  call  the  more  advanced  races,  Teutonic,  Celtic,  and  Sla- 
vonic.    Nineteen  centuries  ago  there  were  probabjy  less  than  ten 

"Adapted  from  an  article  in  the  Atlantic  Monthly,  C,   147-156.     Copy 
right  (1907). 


PROBLEM  OF  SOCIAL  CONTROL  8i 

million  people  belonging  to  these  three  races.  There  are  today 
probably  over  three  hundred  and  fifty  million,  while  the  so-called 
backward  races  have  increased  more  slowly,  and  are  now  everywhere 
mider  the  control  of  the  more  advanced  races.  In  duration  of  life, 
too,  there  is  unquestionably  an  improvement.  Lunacy,  however,  is 
increasing.  This  seems  to  imply  that  there  are  factors  in  modern 
Hfe  which  tend  to  breed  disorders  in  the  brain.  In  this  connection 
a  still  more  serious  question  arises. 

The  law  of  differentiation  and  improvement  by  means  of  natural 
selection  and  the  survival  of  the  fittest  may  reasonably  be  thought 
to  have  done  its  work  during  the  earlier  period  of  the  history  of 
mankind.  The  races  which  have  survived  and  come  to  dominate  the 
earth  have  been  the  stronger  races;  and,  while  strife  lasted,  there 
has  always  been  a  tendency  for  physical  strength  and  intelligence  to 
go  on  increasing.  The  upper  classes  in  every  community  were 
always  stronger  and  handsomer  than  the  classes  at  the  bottom  of  the 
scale.  The  birth-rate  was  probably  higher  among  the  aristocrats, 
and  the  chance  of  the  survival  of  infants  better.  But  in  modern 
society  the  case  is  quite  otherwise.  The  richer  and  more  educated 
classes  marry  later  and  as  a  rule  have  smaller  families  than  the 
poorer  class,  whose  physique  is  generally  weaker  and  whose  intelli- 
gence is  generally  on  a  somewhat  lower  level.  The  result  is  that  a 
class  in  which  physical  strength  and  a  cultivated  intelligence  are 
hereditary  increases  more  slowly  than  do  classes  inferior  in  these 
qualities.  Fortunately,  the  lines  of  class  distinction  are  much  less 
sharply  drawn  than  they  were  some  centuries  ago.  The  upper  class 
is  always  being  recruited  by  persons  of  energy  and  intellect  from 
the  poorer  classes.  Still  we  have  here  a  new  cause  which  may  tend 
to  depress  the  average  level  of  human  capacity. 

The  improvement,  so  far  as  attained,  in  the  physical  quality  of 
mankind  is  largely  due  to  such  changes  in  its  environment  as  the 
greater  abundance  of  food  and  clothing,  the  better  conditions  of 
housing,  the  diffusion  of  property  among  all  classes  in  the  com- 
munity. Along  these  lines  the  improvement  has  been  extraordinary. 
The  luxury  of  the  rich,  the  comfort  of  the  middle  class,  the  com- 
parative immunity  of  the  poorer  classes  from  famine  and  pestilence, 
have  increased  within  the  last  two  centuries  more  than  they  had 
during  many  preceding  centuries. 

Most  remarkable  of  all  has  been  the  cause  of  these  improve- 
ments, namely,  the  increase  in  our  knowledge  of  natural  laws  and 
the  power  over  natural  forces  which  has  been  thereby  acquired. 
Man  has  now,  by  comprehending  Nature,  become  her  master.  These 
are  the  things  which  are  commonly  in  our  mind  when  we  talk  of 


82  CURRENT  ECONOMIC  PROBLEMS 

Progress.  It  is  the  wonderful  gains  made  in  these  things  which  are 
visible  and  tangible  and  which  affect  our  daily  life  at  every  turn  that 
have  struck  the  popular  mind,  and  have  seemed  to  mark,  not  only 
a  long  onward  step,  but  the  certainty  of  further  advance.  Material 
progress  has  seemed  to  sweep  everything  else  along  with  it. 

Whether  this  be  so  is  the  very  question  we  have  to  consider. 
Does  our  increased  knowledge  and  command  of  nature,  do  all  those 
benefits  and  comforts  which  that  mastery  has  secured,  so  greatly 
facilitate  intellectual  and  moral  progress  that  we  may  safely  assume 
that  there  will  be  an  increase  in  intelligence,  in  virtue,  and  in  all 
that  is  covered  by  the  word  Happiness?  It  seems  hard  not  to 
believe  it. 

Certainly  we  see  under  these  new  conditions  less  anxiety,  less 
occupation  with  the  hard  necessities  of  finding  food  and  clothing. 
Work  itself  is  less  laborious,  because  more  largely  done  by  machin- 
ery. There  is  more  leisure  that  can  be  used  for  the  acquisition  of 
knowledge  and  for  setting  thought  free  to  play  upon  subjects  other 
than  practical.  The  opportunities  for  obtaining  knowledge  have  been 
extended  and  cheapened.  Transportation  has  become  cheap,  easy, 
and  swift,  enriching  and  refreshing  the  mind  by  foreign  travel. 
Works  of  art  are  produced  more  abundantly.  The  mere  increase  of 
population  and  purchasing  power  has  a  favoring  influence  upon 
intellect,  because  there  is  more  demand  for  the  products  of  intellect 
and  more  persons  employed  in  their  production.  Thus  it  is  clear 
that  material  progress  provided  at  least  unprecedented  facilities  and 
opportunities  for  intellectual  progress.  And  the  quantity  of  intel- 
lectual activity  has  enormously  increased. 

Quality,  however,  must  also  be  considered.  Plato  hinted  that  the 
invention  of  writing  had  weakened  the  powers  of  the  human  mind. 
We  may  well  doubt  whether  the  intellectual  excellence  of  the  age 
can  be  measured  by  the  number  of  speeches  or  the  amount  of  printed 
matter  it  produces,  and  whether  the  incessant  reading  of  newspapers 
and  magazines  tends  on  the  whole  to  strengthen  the  habit  of  thinking. 

Material  progress  has  affected  the  forms  which  intellectual  activ- 
ity takes  and  the  lines  of  inquiry  which  it  follows.  But  there  is  no 
evidence  that  it  has  done  more  to  strengthen  than  to  depress  the 
intensity  and  originality  and  creative  energy  of  intellect  itself;  nor 
have  these  qualities  shown  themselves  more  abundant  as  the  popula- 
tion of  the  earth  has  increased.  And,  as  for  accomplishment  intel- 
lectually, may  there  not  be  a  limit  to  this  kind  of  advance,  and  may 
we  not  be  approaching  that  limit  ? 

But,  if  it  has  proved  difficult  to  say  how  far  material  progress 
and  the  diffusion  and  extension  of  knowledge  have  stimulated  and 


PROBLEM  OF  SOCIAL  CONTROL  83 

are  likely  to  stimulate  intellectual  progress,  still  harder  is  it  to  esti- 
mate their  influence  on  the  standard  of  moral  excellence.  What  is 
Moral  Progress?  The  ancient  philosophers  would  have  described 
its  aim  as  being  Harmony  with  Nature,  that  is,  with  those  tendencies 
in  man  which  lead  him  to  his  highest  good  by  raising  him  above 
sense  temptations.  Augustine  or  Thomas  Aquinas  would  have 
placed  it  in  conformity  to  God's  will  to  which  all  thoughts  and  pas- 
sions should  be  attuned.  Neither  of  these  ideals  had  any  relation 
to  material  progress,  and  saints  would  probably  have  thought  such 
progress  hurtful  rather  than  helpful  to  the  soul. 

To  estimate  the  degree  in  which  some  sins  or  vices  have  declined 
and  others  have  developed,  the  extent  to  which  some  virtues  have 
grown  more  common  and  others  more  rare;  to  calculate  the  re- 
spective ethical  values  of  the  qualities  in  which  there  has  been  an 
improvement  and  a  decline;  and  to  strike  a  general  balance  after 
appraising  the  worth  of  all  these  assets — this  is  a  task  on  which  few 
would  care  to  enter.  No  analysis  and  no  synthesis  could  make  much 
of  data  so  uncertain  in  quantity  and  so  disputable  in  quality.  DiflFer- 
ent  virtues  rise  and  fall,  bloom  and  wither,  as  they  inspire  joy  or 
command  admiration. 

It  may,  however,  be  suggested  that  there  is  one  thing  whose 
relation  to  material  progress  must  somehow  be  the  ultimate  test  of 
every  kind  of  advance.  It  is  Happiness.  But  what  is  Happiness? 
Is  it  Pleasure?  Are  pleasures  to  be  measured  by  a  qualitative  as 
well  as  a  quantitative  analysis?  Shall  we  measure  them  by  the  in- 
tensity by  which  they  are  felt  or  by  the  fineness  and  elevation  of 
the  feeling  to  which  they  appeal?  Is  the  satisfaction  which  Pericles 
felt  in  watching  the  performance  of  a  drama  of  Sophocles  greater 
or  less  than  the  satisfaction  which  one  of  his  slaves  felt  in  draining 
a  jar  of  wine? 

The  comparison  of  our  own  age  with  preceding  ages  does  not 
solve  the  problem.  Most  of  us  probably  rejoice  that  we  did  not  live 
in  the  fifth  or  even  the  seventeenth  century.  But  can  we  be  sure 
that  the  individual  man  in  these  centuries  had  a  worse  time  than  the 
average  man  now  has?  He  was  in  many  points  less  sensitive  to 
suffering  than  we  are,  and  he  may  have  enjoyed  some  things  more 
intensely.  True,  the  fear  of  torment  brooded  like  a  black  cloud  over 
the  minds  of  past  generations.  Yet  we  know  that  many  persons  look 
back  to  the  Ages  of  Faith  as  ages  when  man's  mind  was  far  more 
full  of  peace  and  hope  than  at  present. 

Happiness  is  largely  a  matter  of  temperament,  and  temperament 
largely  depends  upon  physiological  conditions,  and  the   physiological 


84  CURRENT  ECONOMIC  PROBLEMS 

conditions  of  life  are  much  affected  by  economic  and  social  condi- 
tions. How  can  we  then  determine  whether  the  excitement  and 
variety  of  modern  life  make  for  happiness? 

We  may  seem  to  be  better  equipped  for  prophecy  than  we  were, 
because  we  have  come  to  know  all  the  surface  of  the  earth,  and  its 
resources,  and  the  races  that  dwell  thereon,  and  their  respective  gifts 
and  capacities.  But  how  these  elements  will  combine  and  work  to- 
gether is  a  problem  apparently  as  inscrutable  as  ever.  The  bark  that 
carries  Man  and  his  fortunes  traverses  an  ocean  where  the  winds 
are  variable  and  the  currents  unknown. 


B.     THE  CONTROL  OF  ECONOMIC  ACTIVITY 
38.     The  Agencies  of  Social  Control 

BY  EUZABETH  HUGHES 

The  prominence  attached  to  government  interference  with  indus- 
trial enterprise  has  caused  the  other  ways  in  which  society  orders, 
directs,  and  defines  the  efforts  of  individuals  to  be  overlooked. 
Social  control,  it  must  be  remembered,  has  many  channels  through 
which  to  spread  and  need  confine  itself  at  no  time  to  the  single 
course  of  overt  legislation. 

Group  will  operates  most  persistently  and  potently  through  the 
great  unwritten  rules  and  restrictions  imposed  by  custom,  which 
through  their  very  familiarity  often  escape  observation.  A  glance 
at  Eastern,  then  at  Western,  civilization  may  serve  to  show  by  con- 
trast how  far-reaching  and  permeating  is  custom's  influence  upon 
industrial  life.  In  Eastern  countries  custom  decrees  that  trades 
shall  be  hereditary;  that  the  tools  and  methods  used  by  ancestors 
shall  continue  to  be  used  by  present-day  workers;  and  that  human 
labor  shall  not  be  supplanted  in  any  marked  degree  by  machine 
effort,  but  only  supplemented  somewhat  by  it.  Western  civilization, 
on  the  contrary,  adopts  as  its  fetish  the  new  rather  than  the  old, 
favors  development  rather  than  stagnation — in  a  word,  tends  to 
make  change  itself  customary  and  normal.  In  production  machinery 
is  extensively  used,  and  a  child  may  follow  quite  another  trade  than 
his  father's,  or,  if  he  adopts  his  parent's  calling,  need  not  execute  it 
in  precisely  the  same  manner.  But  though  Western  society  is  not 
stereotyped  to  the  degree  to  which  the  social  groups  of  the  Orient 
are,  it  nevertheless  shows  more  than  traces  of  conservatism.  Mill- 
owners,  for  example,  through  custom  cling  to  child  labor ;  merchants 
determine  selling  prices  by  adding  customary  percentages  of  profit, 
differing  greatly  in  different  trades ;  the  standardization  of  woman's 


PROBLEM  OF  SOCIAL  CONTROL  8$ 

dress  makes  little  headway  against  the  custom  of  frequent  and  radical 
changes  in  style ;  spring  millinery  is  marketed  in  January  in  spite  of 
untoward  weather ;  extra  clerks  are  hired  at  Christmas  to  meet  the 
demands  of  those  whom  no  society  for  the  suppression  of  useless 
giving  can  deter  from  eleventh-hour  activity  in  buying.  It  is  custom 
which  leads  people  to  continue  patronizing  the  dealer  and  the  brand 
of  goods  they  have  formerly  found  satisfactory — or  unsatisfactory — 
instead  of  accepting  the  "just-as-good"  substitutes.  Without  the 
power  of  custom  "good  will"  could  not  be  capitalized  as  an  asset, 
and  trademarks  would  not  be  desirable.  Custom,  then,  does  actively 
and  potently  aid  in  regulating  industry. 

The  various  institutions  of  society  epitomize  forms  of  social  con- 
trol. Schools  with  their  industrial  departments  in  a  measure  sup- 
plant the  older  system  of  apprenticeship  and  by  their  vocational 
guidance  bureaus  attempt  to  place  children  in  fitting  occupations. 
The  press,  the  pulpit,  and  the  platform  are  agents  for  the  dissemina- 
tion of  ideas;  and,  by  the  impression  of  group  ideas  and  standards 
upon  individuals,  foster  the  establishment  of  social  solidarity. 
Through  these  a  society's  codes  of  ethics  find  expression:  exploita- 
tion of  workmen,  for  example,  is  frowned  upon;  an  opportunity  for 
everyone  is  coming  to  be  regarded  as  a  matter  of  right;  and  it  is 
insisted  that  competition  shall  be  free  and  not  "cut-throat." 

In  addition  to  the  general  ethical  codes  of  society  are  the  particu- 
lar codes  of  the  different  professions.  For  instance  the  code  of  the 
medical  profession  exercises  a  restraining  and  compelling  influence 
over  many  activities  of  its  members.  It  is  responsible  alike  for  the 
custom  of  non-advertisement  of  medical  services,  a  large  amount  of 
charity  work,  and  a  system  of  class  prices  that  frequently  becomes 
"charging  what  the  traffic  will  bear."  The  medical  man's  code  rules 
out  many  of  the  things  which  law  permits,  and  stands  in  sharp  con- 
trast to  the  principles  of  the  business  man  who  still  holds  to  the 
"eye-for-an-eye"  doctrine  and  looks  upon  shrewdness  and  sagacity 
as  cardinal  virtues,  honesty  as  a  matter  of  policy,  and  good  will  as 
desirable  private  capital.  He  is,  however,  unlike  the  medical  man, 
constrained  to  charge  rich  and  poor  a  single  price  for  his  wares,  thus 
more  adequately  protecting  "the  consumer's  surplus"  of  the  well-to- 
do  classes  than  it  is  protected  from  the  medical  fraternity.  On  the 
contrary  there  is  no  gratuitous  gift  to  the  ne'er-do-well. 

Lawyers,  ministers,  and  teachers — each  in  turn  have  their  codes. 
The  tyranny  of  social  custom  shows  itself  especially  in  the  standard 
of  living  which  each  of  the  professional  classes  is  expected  to  main- 
tain. Salaries  and  fees  must  be  high  enough  in  the  aggregate  to 
make  a  given  standard  attainable  with  circumspect  expenditure. 


86  CURRENT  ECONOMIC  PROBLEMS 

A  man  in  choosing  his  profession  adopts  along  with  his  choice 
an  obHgation  to  obey  the  ethical  code  society  and  the  particular 
group  he  has  joined  expects  him  to  follow.  If  medicine,  he  must 
live  up  to  the  ethics  of  the  medical  profession ;  if  law,  he  must  obey 
its  behests  under  penalty  of  debarment;  if  certain  particular  lines  of 
business,  he  must  rise  or  stoop  to  the  plane  of  competition  maintained 
in  these  lines,  since  nonconformity  automatically  excludes  through 
business  disaster  those  who  do  not  conform. 

He  may  subject  himself  still  further  to  voluntary  compulsion  by 
joining  a  club  or  an  association ;  for  clubs  and  associations,  of  what- 
ever sort  they  be,  have  in  common  the  exercise  of  general  control 
over  members.  The  trade  unionist,  for  example,  may  not  "scab" 
even  if  he  is  unemployed  because  of  a  strike  he  did  not  vote  for; 
nor  may  he  speed  up  even  though  he  can  easily  increase  his  earnings 
through  piece-work ;  nor  work  overtime  without  extra  pay ;  nor  buy 
anything  without  a  union. label;  nor  print  anything  except  on  a 
union  press.  Just  so  the  employer  who  has  allied  himself  with  an 
employers'  association  must  uphold  in  relation  to  his  laborers  those 
principles  and  stipulations  upon  which  the  association  has  agreed.  He 
must  conduct  his  business  less  in  accord  with  his  individual  will  and 
more  as  the  group  has  deemed  best.  Again  there  is  the  Consumers' 
League,  whose  members  pledge  themselves  to  patronize  only  those 
manufacturers  who  measure  up  to  a  standard  set  by  the  League  and 
attain  thereby  unto  an  honored  place  on  its  white  list  and  win  the 
right  to  use  the  Consumers'  label. 

Enough  has  been  said  to  show  that  government  regulation  is  only 
one  form  of  social  control.  In  fact,  it  would  seem  as  if,  in  a  demo- 
cratic society,  legislation  is  only  resorted  to  when  there  is  conflict  in 
control  exerted  by  different  groups  within  society  at  large.  The 
more  satisfactory  the  control  by  the  smaller  group,  the  less  the  eco- 
nomic or  social  oppression  of  one  by  another,  the  less  the  interference 
of  society  at  large  through  law  and  governmental  control. 

39.     The  Family  as  an  Agency  of  Control 

The  importance  of  social  control  lies  in  its  performance  of  two 
functions.  The  first  is  the  organization  of  industrial  society;  the 
second,  the  direction  of  social  activities  to  ends  that  constitute  prog- 
ress. These  results  require  for  their  accomplishment  the  use  of 
a  variety  of  institutions.  So  prevalent  has  become  the  habit  of  ex- 
pressing this  problem  in  terms  of  the  Individual  and  the  State,  that 
we  are  prone  to  overlook  the  less  obvious,  but  extremely  important, 
agencies  of  control.  The  influences  of  some  of  these,  both  in  holding 
society  together  and  in  directing  its  development,  are  far  more  ex- 


PROBLEM  OF  SOCIAL  CONTROL  «7     - 

tensive  and  their  sanctions  far  more  compelling  than  even  state 
authority.  In  fact  such  is  their  power  that  one  of  the  principal 
functions  of  the  state  has  come  to  be  forcing  upon  a  small  minority 
modes  of  action  which  have  been  developed  through  other  agencies 
and  which  have  already  come  to  exercise  a  compelling  influence 
over  the  majority.  A  single  example,  that  of  the  Family,  will  serve 
to  show  the  nature  and  efficiency  of  these  usually  neglected  agencies. 

The  industrial  system  is  in  general  manned  by  adults ;  so  we  are 
too  prone  to  overlook  the  industrial  importance  of  children.  The 
latter  constitute  an  incipient  industrial  force ;  to  them  the  manage- 
ment and  operation  of  the  industrial  system  will  in  course  of  time  be 
intrusted.  How  this  task  is  performed  depends  to  a  large  extent 
upon  influences  brought  to  bear  upon  them  while  they  are  still 
unincumbered  with  active  industrial  duties.  The  system  demands 
personal  efficiency;  it  must  have  workers  who  are  capable  of  sus- 
tained effort.  This  is  an  acquired  characteristic.  The,  savage  does 
not  possess  it;  improper  home  influences  may  prevent  the  civilized 
child  from  acquiring  it.  Its  acquisition  is  very  closely  associated 
with  the  habits  of  home  discipline.  The  common  ethical  standards 
to  be  applied  to  business  dealings  are  also  quite  dependent  upon  the 
same  influences.  The  home  develops  individual  norms ;  these  grow 
into  class  and  social  norms,  which  exercise  over  the  individual  vital 
control  of  actions  through  all-compelling  imperatives  and  inhibitions. 

Industrial  efficiency  likewise  depends  upon  the  proper  distribu- 
tion of  workers  among  the  different  occupations.  The  decisions  af- 
fecting this  distribution  are  not  always  made  by  the  heads  of  fami- 
lies, but  all  of  them  are  surrounded  by  many  and  varied  family 
influences.  The  preparation  for  entering  the  chosen  occupations  is 
usually  made  under  the  same  influences.  Since  the  organization  of 
society  as  well  as  its  development  is  contingent  upon  a  proper  distri- 
bution into  occupational  groups,  the  importance  of  this  cannot  very 
well  be  underestimated.  The  freedom  which  an  individual  pos- 
sesses to  choose  and  change  his  own  occupation  usually  does  not 
come  to  him  until  a  time  when  an  exercise  of  this  freedom  would  be 
attended  by  losses  too  great  to  permit  it. 

Both  the  immediate  welfare  and  the  progress  of  society  vitally 
depend  upon  the  proportions  between  the  three  factors  of  produc- 
tion— land,  labor,  and  capital.  The  family,  more  than  any  other 
institution,  controls  the  increase  in  the  two  factors  subject  to  in- 
crease, capital  and  labor.  The  origin  of  capital,  as  we  know,  is  in 
savings.  Savings  are  what  is  left  of  the  family  income  when  the 
family  expenses  have  been  met.  Since  the  expenditure  depends  verj' 
largely  upon  family  habits,  the  dependence  of  capital  upon  this  insti- 
tution is  clearly  seen.     Family  influences,  too,  are  quite  potent  in 


88  CURRENT  ECONOMIC  PROBLEMS 

inculcating  habits  of  thrift  or  prodigality,  thus  aflfecting  capital 
accumulation  in  the  next  generation. 

The  supply  of  labor  is  controlled  through  a  control  of  the  number 
of  people.  A  new  state,  possessed  of  undeveloped  resources,  can 
partially  control  its  numbers,  through  regulation  of  immigration. 
But  such  a  state  has  least  need  for  controlling  its  numbers.  As  the 
country  develops,  as  resources  are  utilized,  and  as  immigration  falls 
off,  a  control  of  numbers  becomes  more  and  more  a  control  of  the 
birth-rate.  No  state  has  thus  far  succeeded  directly  in  controlling 
the  number  of  births.  Even  indirectly  its  influence  has  not  been  very 
potent.  This  matter  has  been  in  the  past,  and  will  be  in  the  future 
very  largely,  left  to  the  family.  Yet  upon  this  question  of  numbers 
rest  very  vital  economic  considerations,  including  the  questions  of 
wages,  standards  of  living,  capacity  for  material  development,  etc. 
In  brief,  the  forces  influencing  the  sizes  of  the  productive  funds 
out  of  which  wealth  is  to  be  increased  are  very  largely  familial. 

It  is  often  said  that  wants  are  the  mainspring  of  economic  activ- 
ity; that  it  is  the  possession  of  wants  which  is  responsible  for  our 
industrial  system.  If  this  is  so,  we  must  remember  that  the  wants 
which  lead  to  industrial  endeavor,  particularly  to  the  fullest  utiliza- 
tion of  personal  productive  capacities,  are  familial,  rather  than  per- 
sonal, wants.  The  beginning  and  end  of  the  economic  process  lie 
in  the  family.  It  is,  both  directly  and  indirectly,  one  of  the  most 
potent  factors  in  organizing  society  and  in  determining  the  direction 
of  its  development. 


40.    The  State  as  an  Institution  of  Social  Control^ 

BY  EDWIN  CANNAN 

The  existence  of  the  state  and  the  order  enforced  by  it  makes  it 
possible  for  property  to  play  a  part  in  organization.  We  might 
conceive  a  state  of  things  where  co-operation  carried  on  under  the 
influence  of  property  might  exist  without  any  organized  authority  of 
government.  But  such  a  state  of  things  has  never  been  realized,  nor 
is  likely  to  be.  So  the  state  has  been  necessary  in  the  past  and  is 
likely  to  continue  to  be  so  in  the  immediate  future.  Further,  even 
in  a  society  of  perfectly  just  men  it  would  be  desirable  to  have  some 
common  authority  to  make  changes  when  necessary.  Otherwise 
progress  would  be  exceedingly  slow,  since  it  would  have  to  be  im- 
perceptible.   If  fast  enough  to  be  perceptible,  it  would  seem  to  violate 

*  Adapted  from  Wealth:  A  Brief  Explanation  of  the  Causes  of  Economic 
Welfare,  89-95  (iQM)- 


PROBLEM  OF  SOCIAL  CONTROL  89 

custom  and  would,  therefore,  be  tabooed,  in  the  absence  of  ma- 
chinety  for  discussing  reasons  and  passing  judgment  on  them. 

In  the  eighteenth  century  there  grew  up  a  school  of  thinkers 
who  said  to  the  governments  of  the  time,  "Laissez  faire"  or  "Let 
alone."  The  more  philosophical  among  them  were  influenced  by  the 
cult  of  Nature  prevalent  at  the  time,  thinking  that  certain  institu- 
tions were  natural  and  therefore  good,  while  others  were  artificial 
and  bad.  They  wanted  the  institutions  which  they  thought  natural 
let  alone  and  the  others  abolished.  The  practical  men  wanted  cer- 
tain institutions  abolished  which  they  regarded  as  harmful,  and  did 
not  trouble  themselves  to  think  of  the  others.  The  natural  institu- 
tions of  the  philosophers  are  now  seen  to  be  nothing  but  slight  modi- 
fications of  the  institutions  of  their  own  time.  To  the  practical  man, 
the  precept  "Laissez  faire"  never  meant  "Leave  everything  alone," 
nor  even  "Leave  all  natural  things  alone,"  but  simply,  "Leave  alone 
certain  things  which  I  think  ought  to  be  left  alone."  The  practical 
men  got  their  way  to  a.  considerable  extent,  and  therefore  it  has 
become  the  fashion  to  speak  of  the  "laissez-faire  period."  But  there 
never  was  and  never  can  be  a  state  which  practices  this  policy.  The 
very  establishment  of  the  State  negatives  a  policy  of  complete  "Let 
alone." 

In  primitive  times  the  demand  upon  the  authority  which  repre- 
sents the  State  is  constantly  for.  the  enforcement  of  "good  old  cus- 
toms." When  the  State  complies,  it  is  not  letting  alone,  but  taking 
an  active  part  in  the  enforcement  of  these  customs,  which  might 
otherwise  fall  into  disuse  owing  to  violation  by  interested  parties. 
Moreover,  the  enforcement  of  these  customs,  coupled  with  neglect  to 
enforce  other  customs,  involves  a  discrimination  favorable  to  prog- 
ress. Consequently  there  was  a  large  amount  of  "State  interference" 
even  in  periods  when  the  State  seemed  to  do  nothing  except  to 
reinforce  the  people's  respect  for  custom. 

The  general  enforcement  of  law  and  order  and  the  facilitation  of 
necessary  and  desirable  changes  in  that  law  and  order,  though  per- 
haps the  most  vital,  is  by  no  means  the  only  important  function  of  the 
State  in  economic  organization.  Separate  property  in  land  has  never 
covered  the  face  of  any  considerable  country.  A  network  of  narrow 
strips  forming  the  means  of  communication  is  always  found  outside 
the  limits  of  private  property.  Without  this  reservation  from  pri- 
vate property  any  considerable  amount  of  communication  would  be 
impossible.  Hence  provision  of  the  means  of  communication  has 
'  always  been  in  the  hands  of  the  State.  Where  private  parties  build 
railways  they  are  granted  by  the  State  the  right  of  eminent  domain. 


90  CURRENT  ECONOMIC  PROBLEMS 

or  the  power  to  buy  the  land  they  need  to  get  the  required  consecu 
tive  strip,  even  if  the  owners  do  not  wish  to  sell.    They  have  to  pay 
only  fair  "compensation." 

In  modern  times  a  number  of  other  things  have  grown  up  which 
resemble  the  means  of  communication  in  being  spread  over  large 
areas  in  thin  lines.  Water,  drainage,  gas  and  electric  lighting,  tele- 
graphic and  telephonic  communications,  require  a  laying  of  a  net- 
work of  wires  all  over  the  face  of  the  world.  It  is  constantly  neces- 
sary to  acquire  private  property  for  a  part  of  this  work.  These 
things  are  very  similar  to  roads,  railways,  and  canals  in  many  of 
their  characteristics,  and  are  therefore  dealt  with  in  much  the  same 
way.  In  helping  to  provide  these  engineering  works  required  for 
the  progress  of  invention  and  the  thicker  population  in  modern 
times,  the  State  may  be  said  to  be  arranging  for  a  necessary  supple- 
ment to  the  organization  based  on  separate  property. 

Some  kind  of  organization  covering  the  whole  industrial  terri- 
tory and  armed  with  certain  disciplinary  powers  is  obviously  neces- 
sary, and  is  supplied  by  the  State;  badly  as  it  works  in  its  earlier 
forms,  it  is  never  worse  than  the  chaos  which  preceded  it,  and  as 
time  goes  on  it  is  gradually  improved. 

C.     THE  STATEMENT  OF  THE  LAISSEZ-FAIRE        , 
THEORY 

41.     The  Fundamental  Law  of  Nature^ 

BY  W1I.UAM  BLACKSTONE 

As,  therefore,  the  Creator  is  a  being,  not  only  of  infinite  power 
and  wisdom,  but  also  of  infinite  goodness,  he  has  been  pleased  so  to 
contrive  the  constitution  and  frame  of  humanity,  that  we  should 
want  no  other  prompter  to  enquire  after  and  pursue  the  rule  of 
right,  but  only  our  self  love,  that  universal  principle  of  action.  For 
he  has  so  intimately  connected,  so  inseparably  interwoven  the  laws 
of  external  justice  with  the  happiness  of  each  individual  that  the 
latter  cannot  be  attained  but  by  observing  the  former,  and  if  the 
former  be  punctually  obeyed,  it  cannot  but  induce  the  latter.  In 
consequence  of  which  mutual  connection  of  justice  and  human 
felicity,  he  has  not  preplexed  the  law  of  nature  with  a  multitude 
of  abstracted  rules  and  precepts,  referring  merely  to  the  fitness  or 
unfitness  of  things,  as  some  have  vainly  surmised,  but  has  graciously 
reduced  the  rule  of  obedience  to  this  one  paternal  precept,  "that 
man  should  pursue  his  own  true  and  substantial  happiness."     This 

*  Commentaries  on  the  Laws  of  England,  Book  i,  sec.  2   (1765). 


PROBLEM  OF  SOCIAL  CONTROL  91 

is  the  foundation  of  what  we  call  ethics  or  natural  law ;  for  the 
several  articles  into  which  it  is  branched  in  our  system  amount 
to  no  more  than  demonstrating  that  this  or  that  action  tends  to 
man's  real  happiness,  and  therefore  very  justly  concluding  that  the 
performance  of  it  is  a  part  of  the  law  of  nature ;  or,  on  the  other 
hand,  that  this  or  that  action  is  destructive  to  man's  real  happiness, 
and  therefore  that  the  law  of  nature  forbids  it. 

42,  A  Diatribe  against  Human   Institutions" 

BY  J.  J.  ROUSSEAU 

All  things  are  good  as  their  Author  made  them,  but  everything 
degenerates  in  the  hands  of  man.  By  man  our  native  soil  is  forced 
to  nourish  plants  brought  from  foreign  regions,  and  one  tree  is 
made  to  bear  the  fruit  of  another.  Man  brings  about  a  general 
confusion  of  elements,  climates,  and  seasons ;  he  mutilates  his  dogs, 
his  horses,  and  his  slaves ;  he  seems  to  delight  only  in  monsters  and 
deformity.    He  is  not  content  with  anything  as  Nature  left  it. 

As  things  now  are,  a  man  left  to  himself  from  his  birth  would, 
in  his  association  with  others,  prove  the  most  preposterous  creature 
possible.  The  prejudices,  authority,  necessity,  example,  and,  in 
short,  the  vicious  social  institutions  in  which  we  find  ourselves  sub- 
merged, would  stifle  everything  natural  in  him,  and  yet  give  him 
nothing  in  return.  He  would  be  like  a  shrub  which  has  sprung  up 
by  accident  in  the  middle  of  the  highway,  to  perish  by  being  thrust 
this  way  and  that  and  trampled  upon  by  passers-by.  All  our  wisdom 
consists  in  servile  prejudices;  all  our  customs  are  but  suggestions, 
anxiety  and  constraint.  Civilized  man  is  born,  lives,  dies  in  a  state 
of  slavery.  At  his  birth  he  is  sewed  in  swaddling  clothes;  at  his 
death  he  is  nailed  in  a  coffin ;  as  long  as  he  preserves  the  human  form 
he  is  fettered  by  our  institutions. 

43.  A  Plea  against  Governmental  Restraints^ 

BY  ADAM  SMITH 

Every  individual  is  continually  exerting  himself  to  find  out  the 
most  advantageous  employment  for  whatever  capital  he  can  com- 
mand. It  is  his  own  advantage,  indeed,  and  not  that  of  the  society, 
which  he  has  iij  view.  But  the  study  of  his  own  advantage,  natur- 
ally, or  rather  necessarily,  leads  him  to  prefer  that  employment  which 
is  most  advantageous  to  the  society. 

'Smile  ou  l'£diication,  liv.  i  (1762). 

''The  Wealth  of  Nations,  Book  iv,  chap,  ii  (1776). 


^a  CURRENT  ECONOMIC  PROBLEMS 

First,  every  individual  endeavors  to  employ  his  capital  as  near 
home  as  he  can,  and  consequently  as  much  as  he  can  in  the  support 
of  domestic  industry,  provided  always  that  he  can  thereby  obtain  the 
ordinary,  or  not  a  great  deal  less  than  the  ordinary,  profits  of  stock. 
Secondly,  every  individual  who  employs  his  capital  in  the  support 
of  domestic  industry  necessarily  endeavors  so  to  direct  that  industry, 
that  its  produce  may  be  of  the  greatest  possible  value. 

The  produce  of  industry  is  what  it  adds  to  the  subject  or 
materials  upon  which  it  is  employed.  In  proportion  as  the  value  of 
this  produce  is  great  or  small,  so  will  likewise  be  the  profits  of  the 
employer.  But  it  is  only  for  the  sake  of  profit  that  any  man  em- 
ploys a  capital  in  the  support  of  industry ;  and  he  will  always,  there- 
fore, endeavor  to  employ  it  in  the  support  of  that  industry  of  which 
the  produce  is  likely  to  be  of  the  greatest  value,  or  to  exchange  for 
the  greatest  quantity  either  of  money  or  of  other  goods. 

But  the  annual  revenue  of  every  society  is  always  precisely  equal 
to  the  exchangeable  value  of  the  whole  annual  produce  of  its  in- 
dustry, or,  rather,  is  precisely  the  same  thing  with  that  exchange- 
able value.  As  every  individual,  therefore,  endeavors  as  much  as 
he  can  both  to  employ  his  capital  in  the  support  of  domestic  in- 
dustry, and  so  to  direct  that  industry  that  its  produce  may  be  of 
the  greatest  value,  every  individual  necessarily  labors  to  render  the 
annual  revenue  of  the  society  as  great  as  he  can.  He  generally, - 
indeed,  neither  intends  to  promote  the  public  interest,  nor  knows 
how  much  he  is  promoting  it.  By  preferring  the  support  of  do- 
mestic to  that  of  foreign  industry,  he  intends  only  his  own  security ; 
and  by  directing  that  industry  in  such  a  manner  as  its  produce  may 
be  of  the  greatest  value,  he  intends  only  his  own  gain,  and  he  is 
in  this,  as  in  many  other  cases,  led  by  an  invisible  hand  to  promote 
an  end  which  was  no  part  of  his  intention.  Nor  is  it  always  the 
worse  for  the  society  that  it  was  no  part  of  it.  By  pursuing  his  own 
interest  he  frequently  promotes  that  of  the  society  more  effectually 
than  when  he  really  intends  to  promote  it.  I  have  never  known 
much  good  done  by  those  who  affected  to  trade  for  the  public  good. 
It  is  an  affectation,  indeed,  not  very  common  among  merchants, 
and  very  few  words  need  be  employed  in  dissuading  them  from  it. 

What  is  the  species  of  domestic  industry  which  his  capital  can 
employ,  and  of  which  the  produce  is  likely  to  be  of  the  greatest 
value,  every  individual,  it  is  evident,  can,  in  his  local  situation,  judge 
much  better  than  any  statesman  or  lawgiver  can  do  for  him.  The 
statesman  who  should  attempt  to  direct  private  people  in  what 
manner  they  ought  to  employ  their  capitals  would  not  only  load 
himself  with  a  most  unnecessary  attention,  but  assume  an  authority 


PROBLEM  OF  SOCIAL  CONTROL  93 

which  could  safely  be  trusted,  not  only  to  no  single  person,  but  to 
no  council  or  senate  whatever,  and  which  would  nowhere  be  so 
dangerous  as  in  the  hands  of  a  man  who  had  folly  and  presumption 
enough  to  fancy  himself  fit  to  exercise  it. 

44.     A  General  Condemnation  of  Government' 

BY  WIIvUAM  GODWIN 

Society  is  an  ideal  existence,  and  not  on  its  own  account  entitled 
to  the  smallest  regard.  The  wealth,  prosperity,  and  glory  of  the 
whole  are  unintelligible  chimeras.  Set  no  value  on  anything,  but 
in  proportion  as  you  are  convinced  of  its  tendency  to  make  indi- 
vidual men  happy  and  virtuous.  Benefit,  by  every  practical  mode, 
man  wherever  he  exists ;  but  be  not  deceived  by  the  specious  idea 
of  affording  services  to  a  body  of  men,  for  which  no  individual  man 
is  the  better.  Individuals  cannot  have  too  frequent  or  unlimited 
intercourse  with  each  other;  but  societies  of  men  have  no  interests 
to  explain  and  adjust,  except  so  far  as  error  and  violence  may 
render  explanation  necessary.  This  consideration  annihilates  at 
once  the  principal  objects  of  that  mysterious  and  crooked  policy 
which  has  hitherto  occupied  the  attention  of  governments. 

Government  can  have  but  two  legitimate  purposes,  the  suppres- 
sion of  injustice  against  individuals  within  the  community,  and  the 
common  defence  against  external  invasion. 

Legislation,  that  is,  the  authoritative  enunciation  of  abstract 
or  general  propositions,  is  a  function  of  equivocal  nature,  and  will 
never  be  exercised  in  a  pure  state  of  society,  or  a  state  approaching 
to  purity,  but  with  great  caution  and  unwillingness.  It  is  the  most 
absolute  of  the  functions  of  government,  and  government  is  itself 
a  remedy  that  invariably  brings  its  own  evils  along  with  it.  Legis- 
lation, as  it  has  been  usually  understood,  is  not  an  aflFair  of  human 
competence.  Reason  is  the  only  legislator,  and  her  decrees  are  irre- 
vocable and  uniform.  The  functions  of  society  extend,  not  to  the 
making,  but  the  interpreting  of  law ;  it  cannot  decree,  it  can  only 
declare  that  which  the  nature  of  things  has  already  decreed,  and  the 
propriety  of  which  irresistibly  flows  from  the  circumstances  of  the 
case. 

The  true  reason  why  the  mass  of  mankind  has  so  often  been 
made  the  dupe  of  knaves  has  been  the  mysterious  and  complicated 
nature  of  the  social  system.  Once  annihilate  the  quackery  of 
government,  and  the  most  homebred  understanding  will  be  prepared 

'Adapted  from  An  Enquiry  concerning  Political  Justice  and  Its  Influence 
on  General  Virtue  and  Happiness,  514,  561,  564,  555,  168,  575,  579  (1793). 


94  CURRENT  ECONOMIC  PROBLEMS 

to  scorn  the  shallow  artifices  of  the  state  juggler  that  would  mis- 
lead him.  With  what  delight  must  every  well  informed  friend  of 
mankind  look  forward  to  the  auspicious  period,  the  dissolution  of 
political  government,  of  that  brute  engine,  which  has  been  the  only 
perennial  cause  of  the  vices  of  mankind,  and  which  has  mischiefs 
of  various  forms  incorporated  with  substance,  and  not  otherwise 
to  be  removed  than  by  its  utter  annihilation. 

45.     The  Identity  of  Individual  and  Social  Good® 

BY   PIERCY  RAVKNSTONE 

Nature  has  implanted  in  every  man's  breast  an  instinct  which 
teaches  him  intuitively  to  pursue  his  own  happiness ;  and,  by  con- 
necting the  welfare  of  every  part  of  society  with  that  of  the  whole, 
she  has  wisely  ordained  that  he  shall  not  be  able  to  realize  his 
own  wishes  without  contributing  to  the  happiness  of  others 

Every  man  may  thus  safely  be  intrusted  with  the  care  of  work- 
ing out  his  own  prosperity.  It  is  not  necessary  for  governments, 
it  is  therefore  no  part  of  their  duty,  to  teach  to  individuals  what 
will  most  conduce  to  the  success  of  their  pursuits ;  they  are  ill-cal- 
culated for  such  a  superintendence.  All  care  of  this  sort  is  on  their 
part  wholly  impertinent.  Their  functions  are  of  quite  a  diflFerent 
nature ;  to  correct  the  vicious  attachment  to  their  own  interests  which 
too  frequently  induces  men  to  seek  their  own  apparent  good  by  the 
injury  of  others,  which  would  disorder  the  whole  scheme  of  society, 
to  bring  about  what  they  mistakenly  consider  their  own  happiness 
To  restrain,  not  to  direct,  is  the  true  function  of  the  government; 
it  is  the  only  one  it  is  called  on  to  perform,  it  is  the  only  one  it  can 
safely  execute.  It  never  goes  out  of  its  province  without  doing 
mischief.  The  mischief  is  not  always  apparent,  for  the  constitution 
of  the  patient  is  often  sufficiently  strong  to  resist  the  deleterious 
effects  of  the  quackery.  But  it  is  not  safe  to  try  experiments  which 
can  do  no  good,  merely  because  the  strength  of  the  patient  may  pre- 
vent them  from  being  injurious. 

The  spirit  of  interference  has  never  manifested  itself  so  strongly 
as  of  late  years.  It  constitutes  the  very  essence  of  modern  political 
economy.  Everything  is  to  be  done  by  the  state ;  nothing  is  to  be 
left  to  the  discretion  of  individuals.  It  is  proposed  to  transfer  men 
into  a  species  of  political  nursery-ground,  where  the  quality  of 
plants  is  to  be  regulated  with  mathematical  exactness,  to  be  fitted 
to  the  capacity  of  the  soil ;  where  every  exuberance  in  their  shoots 

"From  A  Few  Doubts  as  to  the  Correctness  of  Some  Opinions  Generally 
Entertained  on  the  Subjects  of  Population  and  Political  Economy,  2-3  (1821). 


PROBLEM  OF  SOCIAL  CONTROL  95 

is  to  be  immediately  primed  away,  and  their  branches  confined  within 
the  bounds  of  the  supporting  espalier, 

46.     A  Protest  against  Useless  Restrictions" 

BY  JEREMY  BENTHAM 

Ashurst. — The  law  of  this  country  only  lays  such  restraints  on 
the  actions  of  individuals  as  are  necessary  for  the  safety  and  good 
order  of  the  community  at  large. 

Truth. — I  sow  corn :  partridges  eat  it,  and  if  I  attempt  to  defend 
it  against  the  partridges,  I  am  fined  or  sent  to  gaol :  all  this,  for  fear 
a  great  man,  who  is  above  sowing  corn,  should  be  in  want  of  par- 
tridges. 

The  trade  I  was  bom  to  is  overstocked ;  hands  are  wanting  in 
another.  If  I  ofifer  to  work  at  that  other,  I  may  be  sent  to  gaol  for 
it.  Why?  Because  I  have  not  been  working  at  it  as  an  apprentice 
for  seven  years.  What's  the  consequence?  That,  as  there  is  no 
work  for  men  in  my  original  trade,  I  must  either  come  upon  the 
parish  or  starve. 

There  is  no  employment  for  me  in  my  own  parish:  there  is 
abundance  in  the  next.  Yet  if  I  offer  to  go  there,  I  am  driven  away. 
Why?  Because  I  might  become  unable  to  work  one  of  these  days, 
and  so  I  must  not  work  while  I  am  able.  I  am  thrown  upon  one 
parish  now,  for  fear  I  should  fall  upon  another,  forty  or  fifty  years 
hence. .  At  this  rate  how  is  work  ever  to  be  got  done?  If  a  man  is 
not  poor,  he  won't  work :  and  if  he  is  poor,  the  law  won't  let  him. 
How  then  is  it  that  so  much  is  done  as  is  done?  As  pockets  are 
picked — by  stealth,  and  because  the  law  is  so  wicked  that  it  is  only 
here  and  there  that  a  man  can  be  found  wicked  enough  to  think  of 
executing  it. 

Pray,  Mr.  Justice,  how  is  the  community  you  speak  of  the  better 
for  any  of  these  restraints  ?  and  where  is  the  necessity  of  them  ?  and 
how  is  safety  strengthened  or  good  order  benefitted  by  them  ? 

But  these  are  only  three  out  of  this  thousand. 

47.     Opportunity 

BY  JOHN  J.  INGAIvLS 

Master  of  human  destinies  am  I ! 
Fame,  love,  and  fortune  on  my  footsteps  wait; 
Cities  and  fields  I  walk :    I  penetrate 
Deserts  and  seas  remote,  and  passing  by 

*°From   Truth  against  Ashurst,  in   Works  of  Jeremy  Bentham,    V,  234 
C1823). 


96  CURRENT  ECONOMIC  PROBLEMS 

Hovel  and  mart  and  palace,  soon  or  late 
I  knock  unbidden  once  at  every  gate ! 
If  sleeping  wake:  if  feasting  rise  before 
I  turn  away.    It  is  the  hour  of  fate 
And  those  who  follow  me  reach  every  state 
Mortals  desire,  and  conquer  every  foe 
Save  death ;  but  those  who  doubt  or  hesitate 
Condemned  to  failure,  penury,  and  woe 
Seek  me  in  vain  and  uselessly  implore. 
I  answer  not,  and  I  return  no  more ! 

D.     THE  INTERPRETATION  OF  LAISSEZ-FAIRE 
48.     The  Philosophy  of  Individualism" 

BY  AI^BERT  V.  DICEY 

Individualism  as  regards  legislation  is  popularly  connected  with 
the  name  and  the  principles  of  Bentham.  The  ideas  which  under- 
lie the  Benthamite  or  individualistic  scheme  of  reform  may  con- 
veniently be  summarized  under  three  leading  principles  and  two 
corollaries. 

I.  English  law,  as  it  existed  at  the  end  of  the  eighteenth  cen- 
tury, had  developed  almost  hap-hazard,  as  the  result  of  customs 
or  modes  of  thought  which  had  prevailed  at  different  periods.  The 
laws  had  for  the  most  part  never  been  enacted.  In  order  to  amend 
the  fabric  of  the  law  we  must,  so  Bentham  insisted,  lay  down  a  plan 
grounded  on  fixed  principles.  Legislation,  in  short,  he  proclaimed, 
is  a  science  based  on  the  characteristics  of  human  nature,  and  the 
art  of  law-making,  if  it  is  to  be  successful,  must  be  the  application 
of  legislative  principles. 

II.  The  right  aim  of  legislation  is  the  carrying  out  of  the 
principle  of  utility,  or,  in  other  words,  the  proper  end  of  every  law 
is  the  promotion  of  the  greatest  happiness  of  the  greatestjiumber. 

This  principle  is  the  formula  with  which  popular  memory  has 
most  closely  connected  the  name  of  Bentham.  Whatever  objections 
this  principle  may  be  open  to,  one  may  with  confidence  assert  that 
it  is  far  more  applicable  to  law  than  to  morals,  for  at  least  two 
reasons :  First,  legislation  deals  with  numbers  and  with  whole  classes 
of  men;  morality  deals  with  individuals.  It  is  obviously  easier  to 
determine  what  are  the  things  which  as  a  general  rule  promote  the 

**^ Adapted  from  Lectures  on  the  Relation  between  Law  and  Public  Opinion 
in  England  during  the  Nineteenth  Century,  125-149.  Copyright  by  Mac- 
millan  &  Co.  (1905). 


PROBLEM  OF  SOCIAL  CONTROL  97 

happiness  of  a  large  number  of  persons,  than  to  form  even  a  con- 
jecture as  to  what  may  constitute  the  happiness  of  an  individual. 
Let  it  be  noted  that  the  law  aims  not  at  positive  happiness,  but  only 
at  the  creation  of  conditions  under  which  it  is  likely  that  its  subjects 
will  prosper.  Secondly,  law  is  concerned  primarily  with  external 
actions,  and  is  only  very  indirectly  concerned  with  motives.  Mor- 
ality, on  the  other  hand,  is  primarily  concerned  with  motives  and 
feelings.  But  it  is  far  easier  to  maintain  that  the  principle  of  utility 
is  the  proper  standard  of  right  action  than  that  it  supplies  the  founda- 
tion on  which  rests  the  conviction  of  right  or  wrong. 

Ideas  of  happiness,  it  has  been  objected,  vary  in  different  ages, 
countries,  and  among  different  classes ;  a  legislator,  therefore,  gains 
no  real  guidance  from  the  dogma  that  laws  should  aim  at  pro- 
moting the  greatest  happiness  of  the  greatest  number.  To  this 
objection  there  exists  at  least  two  answers.  The  first  is  that,  even 
if  the  variability  of  men's  conceptions  of  happiness  be  admitted, 
the  concession  proves  no  more  than  that  the  application  of  the 
principle  of  utility  is  conditioned  by  the  ideas  of  human  welfare 
which  prevail  at  a  given  time  in  a  given  country.  There  is  no  reason 
why  utilitarianism  should  refuse  to  accept  this  conclusion.  Different 
laws  may  promote  the  happiness  of  different  people.  The  second 
reply  is  that,  as  regards  the  conditions  of  public  prosperity,  the 
citizens  of  civilized  states  have,  in  modem  times,  reached  a  large 
amount  of  agreement.  For  instance,  who  can  seriously  doubt  that 
a  plentiful  supply  of  cheap  food,  efficient  legal  protection  against 
violence  and  fraud,  and  the  freedom  of  all  classes  from  excessive 
labor  conduce  to  the  public  welfare?  What  man  out  of  Bedlam 
ever  dreamed  of  a  country  the  happier  for  pestilence,  famine  and 
war?  Laws  deal  with  very  ordinary  matters,  and  deal  with  them  in 
a  rough  and  ready  manner.  The  character,  therefore,  of  a  law, 
may  well  be  tested  by  the  rough  criterion  embodied  in  the  doctrine 
of  utility. 

There  still  exists,  however,  an  objection  that  must  be  examined 
with  care.  Bentham  and  his  disciples  have  displayed  a  tendency  to 
underestimate  the  diversity  between  human  beings.  They  have  too 
easily  accepted  the  notion  of  uniformity  in  ideas  of  happiness  in 
different  countries  and  different  ages.  This  supposition  has  facil- 
itated legislation,  but  it  has  led  to  the  feeling  that  laws  which  in 
the  ninteenth  century  promoted  the  happiness  of  Englishmen,  must 
at  all  times  promote  the  happiness  of  the  inhabitants  of  all  countries. 

The  foundation  then  of  legislative  utilitarianism  is  the  combi- 
nation of  two  convictions.  The  one  is  the  belief  that  the  end  of 
human  existence  is  the  attainment  of  happiness ;  the  other  is  the 


98  CURRENT  ECONOMIC  PROBLEMS 

assurance  that  legislation  is  a  science  and  that  the  aim  of  laws  is 
the  promotion  of  human  happiness. 

III.  Every  person  is  in  the  main  and  as  a  general  rule  the 
best  judge  of  his  own  happiness.  Hence  legislation  should  aim  at 
the  removal  of  all  those  restrictions  on  the  free  action  of  an  indi- 
vidual which  are  not  necessary  for  securing  the  like  freedom  on 
the  part  of  his  neighbors. 

This  dogma  of  laissez  faire  is  not  from  a  logical  point  of  view 
an  essential  article  of  the  utilitarian  creed.  A  benevolent  despot 
might  enforce  upon  his  people  laws  which,  though  they  might 
diminish  individual  liberty,  were  likely,  nevertheless,  to  ensure  the 
well-being  of  his  people.  Yet  laissez-faire  was  practically  the  most 
vital  part  of  Bentham's  doctrine.  Bentham  perceived  that  under  a 
system  of  ancient  customs  modified  by  hap-hazard  legislation,  un- 
numbered restraints  were  placed  on  the  actions  of  individuals, 
which  were  in  no  sense  necessary  for  the  safety  and  good  order  of 
the  community  at  large,  and  he  inferred  at  once  that  these  re- 
straints were  evils.  Consequently  we  have  from  him  the  eulogy 
of  laissez-faire.  But  with  him  and  his  disciples  it  was  a  totally  dif- 
ferent thing  from  easy  acquiescence  in  the  existing  conditions  of 
life.  It  was  a  war-cry.  It  sounded  the  attack  upon  every  restric- 
tion, not  justifiable  by  some  definite  and  assignable  reason  of  utility. 

From  these  three  guiding  principles  of  legislative  utilitarianism — 
the  scientific  character  of  sound  legislation,  the  principle  of  utility, 
faith  in  laissez-faire — English  individualists  have  in  practice  deduced 
the  two  corollaries :  that  the  law  ought  to  extend  to  the  sphere  and 
enforce  the  obligation  of  contracts;  and  that,  as  regards  the  pos- 
session of  political  power,  every  man  ought  to  count  for  one  and  no 
man  count  for  more  than  one.  Each  of  these  ideas  has  been  con- 
stantly entertained  by  men  who  have  never  reduced  it  to  a  formula 
or  carried  it  out  to  its  full  logical  result ;  each  of  these  two  ideas  has| 
profoundly  influenced  modem  legislation. 

49.    The  Individualistic  Theory  of  Government*' 

BY  JOHN  STUART  MILL 

We  have  now  reached  the  question  to  what  objects  governmental 
intervention  in  the  affairs  of  society  may  or  should  extend.  The 
supporters  of  interference  have  been  content  with  asserting  a  gen- 
eral right  and  duty  on  the  part  of  government  to  intervene,  where- 
ever  its  intervention  would  be  useful ;  and  when  those  who  have 

^* Adapted  from  Principles  of  Political  Economy,  Book  v,  chap,  xi  (1848). 


PROBLEM  OF  SOCIAL  CONTROL  99 

been  called  the  laissez-faire  school  have  attempted  any  definite  lim- 
itation of  the  province  of  government,  they  have  usually  restricted 
it  to  the  protection  of  person  and  property  against  force  and 
fraud ;  a  definition  to  which  neither  they  nor  any  one  else  can  delib- 
erately adhere,  since  it  excludes  some  of  the  most  indispensable  and 
unanimously  recognized  of  the  duties  of  government. 

Whatever  theory  we  adopt  respecting  the  foundation  of  the  social 
union,  and  under  whatever  political  institutions  we  live,  there  is  a 
circle  around  every  individual  human  being,  which  no  government, 
be  it  that  of  one,  or  a  few,  or  of  the  many,  ought  to  be  permitted  to 
overstep :  there  is  a  part  of  the  life  of  every  person  who  has  come  to 
years  of  discretion,  within  which  the  individuality  of  that  person 
ought  to  reign  uncontrolled  either  by  any  other  individual  or  by  the 
public  collectively.  That  there  is,  or  ought  to  be,  some  space  in  human 
existence  thus  entrenched  around,  and  sacred  from  authoritative 
intrusion,  no  one  who  professes  the  smallest  regard  to  human  free- 
dom or  dignity  will  call  in  question. 

Even  in  those  portions  of  conduct  which  do  affect  the  interest 
of  others,  the  onits  of  making  out  a  case  always  lies  on  the  defend- 
ers of  legal  prohibitions.  It  is  not  a  merely  constructive  or  presump- 
tive injury  to  others,  which  will  justify  the  interference  of  law  with 
individual  freedom.  To  be  prevented  from  doing  what  one  is  in- 
clined to,  or  from  acting  according  to  one's  own  judgment  of  what 
is  desirable,  is  not  only  always  irksome,  but  always  tends  to  starve 
the  development  of  some  portion  of  the  bodily  or  mental  faculties, 
either  sensitive  or  active ;  and  unless  the  conscience  of  the  individual 
goes  freely  with  the  legal  restraint,  it  partakes,  either  in  a  great  or 
in  a  small  degree,  of  the  degradation  of  slaver}\ 

A  second  general  objection  to  government  agenct  is  that  every 
increase  of  the  functions  developing  on  the  government  is  an  in- 
crease of  its  power,  both  in  the  form  of  authority,  and  still  more,  in 
the  indirect  form  of  influence.  The  public  collectively  is  abundantly 
ready  to  impose,  not  only  its  generally  narrow  views  of  its  interests. 
but  its  abstract  opinions,  and  even  its  tastes,  as  laws  binding  upon 
individuals.  And  the  present  civilization  tends  so  strongly  to  make 
the  power  of  persons  acting  in  masses  the  only  substantial  power  in 
society,  that  there  never  was  more  necessity  for  surrounding  indi- 
vidual independence  of  thought,  speech,  and  conduct,  with  the  most 
powerful  defences.  Hence  it  is  no  less  important  in  a  democratic 
than  in  any  other  government,  that  all  tendency  on  the  part  of  public 
authorities  to  stretch  their  interference  should  be  regarded  with  un- 
remitting jealousy. 


loo  CURRENT  ECONOMIC  PROBLEMS 

A  third  general  objection  to  government  agency  rests  on  the 
principle  of  the  division  of  labour.  Every  additional  function  un- 
dertaken by  the  government  is  a  fresh  occupation  imposed  upon  a 
body  already  overcharged  with  duties.  A  natural  consequence  is 
that  most  things  are  ill  done;  much  not  done  at  all,  because  the 
government  is  not  able  to  do  it  without  delays  which  are  fatal  to 
its  purpose. 

I  have  reserved  for  the  last  place  one  of  the  strongest  of  the 
reasons  against  the  extension  of  government  agency.  Even  if  the 
government  could  comprehend  within  itself,  in  each  department,  all 
the  most  eminent  intellectual  capacity  and  active  talent  of  the  nation, 
it  would  not  be  the  less  desirable  that  the  conduct  of  a  large  portion 
of  the  affairs  of  society  should  be  left  in  the  hands  of  the  persons  im- 
mediately interested  in  them.  A  people  among  whom  there  is  no 
habit  of  spontaneous  action  for  a  collective  interest  who  look  habit- 
ually to  their  government  to  command  or  prompt  them  in  all  matters 
of  joint  concern  have  their  faculties  only  half  developed;  their  edu- 
cation is  defective  in  one  of  its  most  important  branches.  There 
cannot  be  a  combination  of  circumstances  more  dangerous  to  human 
welfare  than  that  in  which  intelligence  and  talent  are  maintained 
at  a  high  standard  within  a  governing  corporation,  but  starved  and 
discouraged  outside  the  pale.  Few  will  dispute  the  more  than  suffic- 
iency of  these  reasons,  to  throw,  in  every  instance,  the  burden  of 
making  out  a  strong  case,  not  on  those  who  resist,  but  on  those  who 
recommend  government  interference.  Laissez-faire,  in  short,  should 
be  the  general  practice ;  every  departure  from  it,  unless  required  by 
some  great  good,  is  a  certain  evil. 

But  we  must  now  turn  to  the  second  part  of  our  task,  and  direct 
our  attention  to  cases,  in  which  some  of  those  general  objections  are 
altogether  absent,  while  those  which  can  never  be  got  rid  of  entirely 
are  overruled  by  counter-considerations  of  still  greater  importance. 

Can  it  be  affirmed,  for  instance,  that  the  consumer  is  the  most 
competent  judge  of  the  end?  Is  the  buyer  always  qualified  to  judge 
of  the  commodity?  The  proposition  can  be  admitted  only  with  nu- 
merous abatements  and  exceptions.  This  is  peculiarly  true  of  those 
things  which  are  chiefly  useful  as  tending  to  raise  the  character  of 
human  beings.  The  uncultivated  cannot  be  competent  judges  of 
cultivation.  Those  who  most  need  to  be  made  wiser  and  better 
usually  desire  it  least,  and  if  they  desired  it,  would  be  incapable  of 
finding  the  way  to  it  by  their  own  lights.  In  the  matter  of  educa- 
tion, the  inter\'ention  of  government  is  justifiable,  because  the  case 
is  not  one  in  which  the  interest  and  judgment  of  the  consumer  are 
a  sufficient  security  for  the  goodness  of  the  commodity.    Let  us  now 


PROBLEM  OF  SOCIAL  CONTROL  loi 

consider  other  cases,  where,  for  one  reason  or  another,  governmental 
interference  is  necessary.  These  may  be  classed  under  several  heads. 
First,  the  individual  who  is  presumed  to  be  the  best  judge  of 
his  own  interests  may  be  incapable  of  judging  or  acting  for  him- 
self; may  be  a  lunatic,  an  idiot,  an  infant;  or,  though  not  wholly 
incapable,  may  be  of  immature  years  and  judgment.  In  this  case 
the  foundation  of  the  laissez-faire  principle  breaks  down  entirely. 
The  person  most  interested  is  not  the  best  judge  of  the  matter,  n<3r 
a  competent  judge  at  all.  To  take  an  example  from  the  peculiar 
province  of  political  economy;  it  is  right  that  children,  and  young 
persons  not  yet  arrived  at  maturity,  should  be  protected,  so  far  as 
the  eye  and  hand  of  the  state  can  reach,  from  being  over-worked. 
Freedom  of  contract,  in  the  case  of  children,  is  but  another  word 
for  freedom  of  coercion.  Education  also  is  not  a  thing  which  par- 
ents or  relatives  should  have  it  in  their  power  to  withhold. 

But  the  classing  together,  for  this  and  other  purposes,  of  women 
and  children,  appears  to  me  both  indefensible  in  principle  and  mis- 
chievous in  practice.  Children  below  a  certain  age  cannot  judge  or 
act  for  themselves,  but  women  are  as  capable  as  men  of  appreciating 
and  managing  their  own  concerns,  and  the  only  hindrance  to  their 
doing  so  arises  from  the  injustice  of  their  present  social  position.  If 
women  had  as  absolute  a  control  as  men  have  over  their  own  persons 
and  their  own  patrimony  or  acquisitions,  there  would  be  no  plea  for 
limiting  their  hours  of  labouring  for  themselves,  in  order  that  they 
might  have  time  to  labour  for  the  husband,  in  what  is  called  his  home. 
Women  employed  in  factories  are  the  only  women  in  the  labouring 
rank  of  life  whose  position  is  not  that  of  slaves  and  drudges. 

A  second  exception  is  when  ^  an  individual  attempts  to  decide 
irrevocably  now  what  will  be  best  for  hi.s  interest  at  some  future  and 
distant  time.  The  practical  maxim  of'  leaving  contracts  free  is  not 
applicable  without  great  limitations  in  ca^e  of  engagements  in  per- 
petuity; and  the  law  should  be  extremely  jealous  of  "such  engage- 
ments. '     '  ' ' 

The  third  exception  which  I  shall  notice  has  'reference  to  the 
great  class  of  cases  in  which  the  individuals  can  only  manage  the 
concern  by  delegated  agency,  and  in  which  the  so-called  private  man- 
agement is,  in  point  of  fact,  hardly  better  entitled  to  be  called  man- 
agement by  the  persons  interested,  than  administration  by  a  public 
officer.  Whatever,  if  left  to  spontaneous  agency,  can  only  be  done 
by  joint  stock  associations,  will  often  be  as  well,  and  sometimes  bet- 
ter done,  as  far  as  the  actual  work  is  concerned,  by  the  state.  Gov- 
ernment management  is,  indeed,  proverbially  jobbing,  careless,  and 


I02  CURRENT  ECONOMIC  PROBLEMS 

ineffective,  but  so  likewise  has  generally  been  joint-stock  manage- 
ment. 

To  a  fourth  cause  of  exception  I  must  request  particular  atten- 
tion, it  being  one  to  which,  as  it  appears  to  me,  the  attention  of 
political  economists  has  not  yet  been  sufficiently  drawn.  There  are 
matters  in  which  the  interference  of  law  is  required,  not  to  overrule 
the  judgment  of  individuals  respecting  their  own  interest,  but  to 
give  effect  to  that  judgment ;  they  being  unable  to  give  effect  to  it 
except  by  concert,  which  concert  again  cannot  be  effectual  unless 
it  receives  validity  and  sanction  from  the  law.  For  illustration  I 
may  advert  to  the  question  of  diminishing  the  hours  of  labour.  Let 
us  suppose  that  a  general  reduction  of  the  hours  of  factory  labour, 
say  from  ten  to  nine,  would  be  for  the  advantage  of  the  work  people  ; 
that  they  would  receive  as  high  wages,  or  nearly  as  high,  for  nine 
hours'  labour  as  they  receive  for  ten.  If  this  would  be  the  result, 
and  if  the  operatives  generally  are  convinced  that  it  would,  the  lim- 
itation, some  may  say,  will  be  adopted  spontaneously.  I  answer, 
that  it  will  not  be  adopted  unless  the  body  of  operatives  bind  them- 
selves to  one  another  to  abide  by  it.  For  however  beneficial  the  ob- 
servance of  the  regulation  might  be  to  the  class  collectively,  the 
immediate  interest  of  every  individual  would  lie  in  violating  it :  and 
the  more  numerous  those  were  who  adhered  to  the  rule,  the  more 
would  individuals  gain  by  departing  from  it. 

Fifthly:  the  argument  against  government  interference  cannot 
apply  to  the  very  large  class  of  cases,  in  which  those  acts  of  indi- 
viduals with  which  the  government  claims  to  interfere,  are  not 
done  by  those  individuals  for  their  own  interest,  but  for  the 
interest  of  other  people.  This  includes,  among  other  things, 
the  important  and  much  agitated  subject  of  public  charity.  Though 
individuals  should,  in 'general, '.bie' left  to  do  for  themselves  whatever 
it  can  reasonably  be.  expected"  that  they  should  be  capable  of  doing, 
yet  when  they,  are  at  any  rate  not  to  be  left  to  themselves,  but  to 
be  helped  by  other  people,  the  queston  arises  whether  it  is  better  that 
they  should  rtcftxvt  this  help  exclusively  from  individuals,  and  there- 
fore uncertainly  and  casually,  or  by  systematic  arrangements,  in 
which  society  acts  through  its  organ,  the  state.  Other  cases,  falling 
within  the  same  general  principle,  are  those  in  which  the  acts  done 
by  individuals,  though  intended  solely  for  their  own  benefit,  involve 
consequences  extending  indefinitely  beyond  them,  to  interests  of  the 
nation  or  of  posterity,  for  which  society  in  its  collective  capacity  is 
alone  able,  and  alone  bound,  ^o  provide. 

The  same  principle  extends  also  to  a  variety  of  cases,  in  which 
important  public  services  are  to  be  performed,  while  yet  there  is  no 


PROBLEM  OF  SOCIAL  CONTROL  103 

individual  specially  interested  in  performing  them,  nor  would  any 
adequate  remuneration  naturally  or  spontaneously  attend  their  per- 
formance. Take  for  instance  a  voyage  of  geographical  or  scientific 
exploration.  It  may  be  said,  generally,  that  anything  which  it  is 
desirable  should  be  done  for  the  general  interests  of  mankind  or  of 
future  generations,  or  for  the  present  interests  of  those  members 
of  the  community  who  require  external  aid,  but  which  is  not  of  a 
nature  to  remunerate  individuals  or  associations  for  undertaking  it, 
is  in  itself  a  suitable  thing  to  be  undertaken  by  government. 

The  preceding  heads  comprise,  to  the  best  of  my  judgment,  the 
whole  of  the  exceptions  to  the  practical  maxim  that  the  business  of 
society  can  be  best  performed  by  private  and  voluntary  agency.  It 
is,  however,  necessary,  to  add,  that  the  intervention  of  government 
cannot  always  practically  stop  short  at  the  limit  which  defines  the 
cases  intrinsically  suitable  for  it.  In  the  particular  circumstances  of 
a  given  age  or  nation,  there  is  scarcely  any  thing,  really  important 
to  the  general  interest,  which  it  may  not  be  desirable,  or  even  neces- 
sary, that  the  government  should  take  upon  'itself.  Even  in  the 
best  state  which  society  has  yet  reached  it  is  lamentable  to  think  how 
great  a  proportion  of  all  the  efforts  and  talents  in  the  world  are 
employed  in  merely  neutralizing  one  another.  It  is  the  proper  end 
of  government  to  reduce  this  wretched  waste  to  the  smallest  possi- 
ble amount,  by  taking  such  measures  as  shall  cause  the  energies  now 
spent  by  mankind  in  injuring  one  another,  or  in  protecting  them- 
selves against  injury,  to  be  turned  to  the  legitimate  employment  of 
the  human  faculties,  that  of  compelling  the  powers  of  nature  to  be 
more  and  more  subservient  to  physical  and  moral  good. 

50.    The  Authoritative  Basis  of  Laissez-Faire 

There  is  nothing  novel  in  the  assertion  that  deference  to  author- 
ity is  the  most  persistent  and  fundamental  of  the  many  aspects  of 
the  intellectual  attitude,  laissez-faire.  True  it  is  that  the  expression 
carries  the  idea  of  an  industrial  regime  going  its  way,'untrammeled 
by  state  interference.  In  fact  its  most  obvious  meaning  seems  to 
be  a  policy  under  which  the  individual  shall  be  legally  free  to 
select  his  own  occupation,  choose  his  own  business  associates,  em- 
ploy an  industrial  technique  and  organization  which  is  to  his  own 
liking,  and  buy  his  materials  and  labor  and  market  his  wares  on 
terms  voluntarily  made.  Thus  it  means  freedom  for  the  individual 
in  the  immediate  conduct  of  his  business  and  the  sale  of  his  wares. 

But  it  does  not  totally  exclude  authority.  Many  advocates  of 
laissez-faire  see  nothing  amiss  in  governmental  grants  of  public 


I04  CURRENT  ECONOMIC  PROBLEMS 

lands,  subsidies,  patents,  or  franchises.  Many  would  permit  the 
state  to  levy  customs  duties  intended  to  check  importations,  raise 
prices,  and  increase  the  number  of  those  engaged  in  protected  in- 
dustries. All  would  allow  the  state  to  encourage  commerce  by  im- 
proving transportation  and  credit  facilities.  It  is  perhaps  not  an 
overstatement  to  say  that  the  advocate  of  laissez-faire  regards  as 
interference,  not  all  political  activity  affecting  industry,  but  only  such 
as  adversely  affects  business  interests. 

Instances  such  as  the  above,  however,  are  only  passing 
phases  of  the  situation.  Penetrating  and  conditioning  indus- 
trial activity  at  every  point  there  is  a  tangled  web  of  legal, 
political  and  social  institutions.  Among  the  legal  institutions 
are  the  prohibition  of  physical  violence  \n  industrial  activity, 
a  recognition  of  private  property  rights,  machinery  for  com- 
pelling the  discharge  of  obligations  voluntarily  assumed,  and  pre- 
scribed forms  for  partnerships  and  corporations.  Among  the 
social  institutions  are  a  system  of  intangible  and  immaterial  prop- 
erty rights,  the  manifestations  of  public  and  class  opinion,  a  code  of 
business  ethics,  and  a  system  of  collective  action  and  the  recog- 
nition of  collective  authority  in  individual  industrial  establishments. 
Upon  these  the  advocate  of  laissez-faire  of  necessity  takes  an  atti- 
tude. Since  these  institutions  change  slowly  and  are  conceived 
of  as  indispensible,  they  have  generally  been  regarded  by  the 
business  man  as  a  part  of  the  unchangeable  nature  of  things.  There- 
fore laissez-faire  formally  says  nothing  about  them.  Yet  its  very 
silence  is  the  best  evidence  of  its  unqualified  approval  of  habitual 
legal  and  social  institutions  and  its  demand  that  the  individual  he 
hedged  about  with  conventional  authority. 

Not  only  is  the  province  from  which  authority  is  excluded  a 
narrow  one,  but  even  in  thai-  province  laissez-faire  is  conceived 
of  as  a  mere  means  for  securing  some  desirable  social  end.  Neither 
theorist  nor  layman,  in  formulating  his  reasons  for  supporting 
this  policy,  declares  himself  in  favor  of  a  purely  acquisitive  system, 
wherein  the  strong  shall  wax  stronger  at  the  expense  of  the  weak. 
By  the  older  school,  whose  aspirations  for  society  were  democratic, 
it  was  argued  that  the  competitive  struggle,  under  laissez-faire, 
resulted  in  the  greatest  good,  not  only  to  the  highly  successful  few, 
but  to  every  member  of  the  social  community.  By  the  newer  school 
the  basis  of  whose  theories  is  biological,  and  whose  ideal  is  aris- 
tocratic, its  justification  is  found  in  the  elimination  of  the  unfit, 
the  perpetuation  of  the  fit,  and  the  tendency  of  society  towards 
a  higher  cultural  level.  By  some  of  the  latter  charity  is 
strongly  condemned,  not  because  it  strips  the  fit  of  some  of  the 


PROBLEM  OF  SOCIAL  CONTROL  105 

earnings  which  the  industrial  struggle  has  brought  him,  but  because 
the  survival  of  dependants  tends  to  lower  the  prevailing  type  of 
civilization.  Into  the  merits  of  these  theories  this  is  not  the  place 
to  go.  Here  it  is  enough  to  note  that  even  its  most  extreme  advo- 
cates do  not  conceive  of  laissez-faire  as  a  theory  of  predation,  nor 
seek  to  justify  it  by  any  benefits,  however  great,  which  it  may  con- 
fer on  the  individual.  On  the  contrary,  over  and  above  him,  a  con- 
scious social  end  is  set  up,  to  the  realization  of  which  his  activities 
must  tend,  and  in  view  of  which  the  policy  itself  is  to  be  approved 
or  condenmed. 

51.    The  Unscientific  Character  of  Laissez-Faire^* 

BY  J.  E,  CAIRNES 

Political  Economy  has  to  do  with  wealth.  But  what  is  the 
problem  concerning  wealth  which  it  undertakes  to  solve?  I  think 
the  prevailing  notion  is  that  it  undertakes  to  show  that  wealth  may 
be  most  rapidly  increased  and  most  fairly  distributed,  by  the  simple 
process  of  leaving  people  to  follow  the  promptings  of  self-interest 
unrestrained  either  by  the  State  or  by  public  opinion.  That  is  the 
doctrine  of  laissez-faire.  I  shall  endeavor  to  show  that  the  maxim 
of  laissez-faire  has  no  scientific  basis  whatever,  but  is  at  best  a  mere 
handy  rule  of  practice. 

If  the  doctrine  of  laissez-faire  is  to  be  taken  as  a  scientific  prin- 
ciple, its  implied  assertion  is  this :  that,  taking  htmian  beings  as  they 
are,  in  their  intellectual  and  physical  surroundings,  and  accepting 
the  institution  of  private  property  as  commonly  understood,  the 
promptings  of  self-interest  will  lead  individuals,  in  all  that  range 
of  their  conduct  which  has  to  do  with  their  material  wellbeing, 
spontaneously  to  follow  that  course  which  is  most  for  their  own 
good  and  for  the  good  of  all.  You  will  at  once  see  that  it  involves 
the  two  following  assumptions:  first,  that  the  interests  of  indi- 
viduals are  fundamentally  the  same,  secondly,  that  individuals  know 
their  interests  in  the  sense  in  which  they  are  coincident  with  the  in- 
terests of  others,  and  that,  in  the  absence  of  coercion,  they  will  in 
this  sense  follow  them.  If  these  two  propositions  be  made  out,  the 
policy  of  laissez-faire  follows  with  scientific  rigour. 

But  can  they  be  made  out  ?  For  my  part  I  am  disposed  to  accept 
the  first  one,  that  human  interests,  well  understood,  are  fundamen- 
tally at  one.  But  how  as  to  this  assumption  that  people  know  their 
interests  in  the  sense  in  which  they  are  identical  with  the  interests 

"Adapted  from  "Political  Economy  and  Laissez-Faire,"  in  Essays  in 
Political  Economy,  240-252  (1873). 


io6  CURRENT  ECONOMIC  PROBLEMS 

of  others,  and  that  they  spontaneously  follow  them  in  this  sense? 
The  advocates  of  laissez-faire  usually  argue  that  human  interests  are, 
naturally  harmonious;  therefore  we  have  only  to  leave  people  free, 
and  social  harmony  will  result;  as  if  it  were  an  obvious  thing  that 
people  know  their  interests  in  the  sense  in  which  they  coincide  with 
the  interests  of  others,  and  that  knowing  them,  they  must  follow 
them,  as  if  there  were  no  such  things  in  the  world  as  passion,  preju- 
dice, custom,  esprit  de  corps,  class  interest,  to  draw  people  aside 
from  the  pursuit  of  their  interests  in  the  largest  and  highest  sense ! 
Here  is  the  fatal  flaw  on  the  very  threshold  of  the  argument.  Noth- 
ing is  easier  than  to  show  that  people  follow  their  interest,  in  the 
sense  in  which  they  understand  their  interest.  But  between  follow- 
ing their  interest  in  this  sense  and  in  the  sense  in  which  it  is  coinci- 
dent with  the  interests  of  other  people,  a  chasm  yawns.  That  chasm 
in  the  argument  of  laissez-faire  has  never  been  bridged. 

To  come  to  the  important  point,  what  is  it  that  people  under- 
stand to  be  their  interests?  What  did  landlords,  as  a  class,  under- 
stand to  be  their  interests  down  to  1846,  when  they  maintained  the 
Corn  Laws  as  indispensable  to  their  rents,  and  the  prop  of  their 
political  power?  What  do  Irish  landlords  understand  to  be  their  in- 
terests when  they  are  withheld  only  by  fear  of  assassination  from 
evicting  their  tenants  to  consolidate  their  estates?  What  did  em- 
ployers in  former  days  understand  to  be  their  interests  when  they 
enacted  statutes  of  laborers?  Or,  in  more  recent  times,  when  a 
ten  hours'  act  became  necessary  to  protect  women  and  children 
against  the  unscrupulous  pursuit  of  gain?  I  ask  if  any  one  can 
seriously  consider  the  etate  of  things  represented  by  these  examples, 
and  retain  absolute  confidence  in  his  maxim  of  laissez-faire  ? 

The  truly  significant  circumstance « is  that  the  policy  expressed 
by  laissez-faire  has  been  steadily  progressive  for  nearly  half  a 
century,  and  yet  we  have  no  sign  of  mitigation  in  the  harshest 
features  of  our  social  state.  Those  ugly  social  features,  those  violent 
contrasts  of  poverty  and  wealth,  that  strike  so  unpleasantly  the  eye 
of  every  foreign  observer  in  this  country,  are  still  painfully  prom- 
inent. In  a  word,  "the  grand  final  result,  the  indefinite  approxi- 
mation of  all  classes  towards  a  level  which  is  always  rising,"  seems 
as  yet  scarcely  nearer.  This  seems  to  me  to  abate  our  confidence 
in  laissez-faire  as  the  panacea  for  industrial  ills. 

There  is  no  evidence  to  warrant  the  assumption  that  lies  at  the 
root  of  this  doctrine.  Human  beings  follow  their  interests  according 
to  their  delights  and  dispositions ;  but  not  necessarily  in  that  sense 
in  which  the  interest  of  the  individual  is  coincident  with  that  of 
others  or  of  the  whole.    It  follows  that  there  is  no  security  that  the 


PROBLEM  OF  SOCIAL  CONTROL  107 

economic  phenomena  of  society  will  always  arrange  themselves 
spontaneously  in  the  way  that  is  most  for  the  common  good.  Tn 
other  words  laissez-faire  falls  to  the  ground  as  a  scientific  doctrine. 
At  best  it  is  a  practical  rule  and  not  a  doctrine  of  science.  Like 
most  other  practical  rules,  it  is  open  to  numerous  exceptions. 
Above  all,  it  must  never  for  a  moment  be  allowed  to  stand  in  the 
way  of  the  candid  consideration  of  any  promising  proposal  of 
social  or  industrial  reform. 


'     E.    THE  PROTEST  AGAINST  INDIVIDUALISM 
52.     The  Tyranny  of  the  Machine" 

BY  JOSEPH  HARDING  UNDERWOOD 

The  modem  "tripods  of  Hephaestus" — the  spinning  jenny,  the 
mule,  the  loom — instead  of  serving  as  allies  to  human  hands,  speed- 
ily became  masters  of  "hands."  The  undemocratic  idea  prevailed — 
laissez-faire,  let  me  do  as  I  please — "me"  being  a  man  with  a  hun- 
dred hands,  which  speedily  became  a  thousand.  The  use  of  men, 
women,  and  children  by  factory-owners  at  the  beginning  of  the  nine- 
teenth century  had  all  the  advantages  and  none  of  the  disadvantages 
of  slave  ownership.  Starvation  brought  the  wives  and  daughters 
of  the  workmen  to  the  factories  and,  since  only  their  labor  and  not 
their  strength  had  to  be  bought,  there  was  no  waste  in  wearing  them 
out.  Half-naked  women  were  harnessed  to  draw  carts  in  the  mines 
through  passages  two  feet  seven  inches  high;  children  of  seven 
worked  twelve  to  fourteen  hours  a  day  in  factories.  There  were 
regular  traffickers  in  children  of  paupers.  "In  stench,  in  heated 
rooms,  amidst  the  constant  whirring  of  a  thousand  wheels,  little 
fingers  and  little  feet  were  kept  in  constant  action,  forced  into  un- 
natural activity  by  blows  from  the  heavy  hands  and  feet  of  the 
merciless  overlooker  and  the  infliction  of  bodily  pain  by  instruments 
of  punishment,  invented  by  the  sharpened  ingenuity  of  insatiable 
selfishness."^^  They  were  fed  the  same  food  that  the  master  gave 
his  pigs.  Irons  were  riveted  to  the  ankles  and  chained  to  the  hips 
of  girls  and  women  to  keep  them  from  running  away.  The  suicides, 
the  murdered,  and  the  tired  were  buried  secretly.  No  such  cruelty 
was  ever  widespread  under  slavery.    It  would  not  pay. 

** Adapted  from   The  Distribution  of  Ownership,  52-53   (1907). 
"Gibbins,  Industry  in  England,  389. 


io8  CURRENT  ECONOMIC  PROBLEMS 

53.     The  Passing  of  the  Frontier 

BY  THOMAS  B.    MACAULAy" 

Despots  plunder  their  subjects,  though  history  tells  them  that, 
by  prematurely  exacting  the  means  of  profusion,  they  are  in  fact 
devouring  the  seed-corn  from  which  the  future  harvest  is  to  spring. 
Why,  then,  should  we  suppose  that  people  will  be  deterred  from 
procuring  immediate  relief  and  enjoyment  by  the  fear  of  calamities 
that  may  not  be  fully  felt  till  the  times  of  their  grandchildren  ? 

The  case  of  the  United  States  is  not  in  point.  In  a  country  where 
the  necessities  of  life  are  cheap  and  the  wages  of  labor  high,  where  a 
man  who  has  no  capital  but  his  legs  and  arms  may  expect  to  become 
rich  by  industry  and  frugality,  it  is  not  very  decidedly  even  for  the 
immediate  advantage  of  the  poor  to  plunder  the  rich.  But  in  coun- 
tries where  the  great  majority  live  from  hand  to  mouth,  and  in 
which  vast  masses  of  wealth  have  been  accumulated  by  a  compara- 
tively small  number,  the  case  is  widely  different.  The  immediate 
want  is  at  particular  seasons  imperious,  irresistible.  In  our  own 
,  time  it  has  steeled  men  to  the  fear  of  the  gallows,  and  urged  them 
on  to  the  point  of  the  bayonet.  And,  if  these  men  had  at  their 
command  that  gallows,  and  those  bayonets  which  now  scarcely  re- 
strain them,  what  is  to  be  expected?  The  better  the  government, 
the  greater  is  the  inequality  of  conditions ;  and  the  greater  the  in- 
equality of  conditions,  the  stronger  are  the  motives  which  impel  the 
populace  to  spoliation.  As  for  America,  we  appeal  to  the  twentieth 
century. 

BY  JAMES  BRYCE^' 

America,  in  her  swift,  onward  progress,  sees,  looming  on  the 
horizon,  and  now  no  longer  distant,  a  time  of  mists  and  shadows, 
wherein  dangers  may  be  concealed  whose  form  and  magnitude  she 
can  scarcely  yet  conjecture.  As  she  fills  up  her  western  regions 
with  inhabitants,  she  sees  the  time  approach  when  all  the  best  land 
will  have  been  occupied,  and  when  the  land  under  cultivation  will 
have  been  so  far  exhausted  as  to  yield  scantier  crops  even  to  more 
extensive  culture.  Although  transportation  may  also  then  have  be- 
come cheaper,  the  price  of  food  will  rise ;  farms  will  be  less  easily 
obtained  and  will  need  more  capital  to  work  them  with  profit;  the 
struggle  for  existence  will  become  more  severe.  And  while  the  out- 
'  let  which  the  West  now  provides  for  the  overflow  of  the  great  cities 
will  have  become  less  available,  the  cities  will  have  become  immensely 

"Adapted  from  the  essay  on  Mill  on  Government  (1828). 

"Adapted  from  The  American  Commonwealth,  1st  ed..  Ill,  662  (1888). 


PROBLEM  OF  SOCIAL  CONTROL  109 

more  populous;  pauperism,  now  confined  to  six  or  seven  of  the 
greatest,  will  be  more  widely  spread;  wages  will  probably  sink  and 
work  will  be  less  abundant.  In  fact,  the  chronic  evils  and  problems 
of  the  old  societies  and  crowded  countries,  such  as  we  see  them  in 
Europe  today,  will  have  reappeared  on  this  new  soil. 

BY  PETER  FINLEY  DUNNE 

"Opporchunity,"  says  Mr.  Dooley,  "knocks  at  iv'ry  man's  dure 
wanst.  On  some  men's  dures  it  hammers  till  it  breaks  down  th'  dure, 
an'  then  it  goes  in  an'  wakes  him  up  if  he's  asleep,  an'  afterwards  it 
worrucks  f'r  him  as  a  nightwatchman.  On  some  men's  dures  it 
knocks  an'  runs  away,  an'  on  th'  dures  iv  sorne  men  it  knocks  an' 
whin  they  come  out  it  hits  thim  over  th'  head  with  an  axe.  But 
iv'ry  wan  has  an  opporchunity." 

54.     The  New  Issues^' 

BY  WII^LIAM  GARROTT  BROWN 

The  twentieth  century  is  upon  us.  Americans  are  beginning  to 
find  themselves  confronted  with  the  questions  which  have  already 
long  beset  older  and  more  crowded  countries.  We  can  hardly  doubt 
that  certain  new  public  issues  which  within  the  last  two  or  three 
years  have  come  very  swiftly  to  the  front  have  come  to  stay.  We 
are  not  yet  an  old  society,  or  a  crowded  country.  But — the  fron- 
tier is  gone.  We  are  in  the  situation  of  a  man  who,  though  still 
very  young,  has  nevertheless  reached  maturity  and  come  into  full 
possession  of  his  estate ;  of  an  estate  vast,  but  yet  of  a  vastness  no 
longer  incalculable,  no  longer  uncalculated,  and  which  is  also  ap- 
preciably impaired  by  the  waste  and  extravagance  of  his  youth. 

We  face,  therefore,  the  responsibility  of  maturity,  of  a  more 
careful  development  and  husbandry  of  our  great  demesne.  The 
time  of  boundless  anticipation  is  past.  We  have  instead  a  sure  sense 
of  strength,  but  with  it  comes  also  at  last  the  sense  that  even  our 
strength,  and  our  capacity  for  growth,  have  their  limits.  There  is 
as  yet  no  real  pinch,  no  severe  pressure  or  congestion ;  far  from  it. 
But  the  certainty  that  these  things  are  in  the  future  is  at  last  borne 
in  upon  us  by  facts  and  warnings.  That  is  enough  to  change  our 
mood.  We  are  taking  up,  and  ought  to  be  taking  up,  certain  of  the 
problems  of  "old  societies  and  crowded  countries,"  and  the  coming 
of  these  new  problems  has  somewhat  changed  the  aspect  of  certain 
others  which,  even  with  us,  are  old. 

'^^Adapted  from  The  New  Politics  and  Other  papers,  6-28.  Copyright 
by  Eugene  L.  Brown.    Published  by  Houghton,  Mifflin  &  Co.  (1914). 


no  CURRENT  ECONOMIC  PROBLEMS 

The  new  issues  all  have  this  much  in  common :  They  are  all  at 
bottom  economic,  and  economic  in  a  very  strict  derivative  sense  of 
the  word — all  questions  of  national  housekeeping,  of  the  safeguard- 
ing, the  development,  and  the  distribution  of  our  immense  national 
inheritance.  The  rapid  and  revolutionary  development  of  transpor- 
tation has  transformed  bewilderingly  the  entire  field  with  which 
economic  legislation  must  deal.  It  is  not  merely  that  we  are  ap- 
proaching the  problems  of  older  societies.  These  problems  have 
taken  on  for  us  new  aspects,  aspects  hardly  known  elsewhere,  and 
a  truly  American  vastness  of  range.  We  can  and  should  profit  by 
a  close  study  of  European  experience.  But  the  guidance  we  can 
get  from  older  countries,  however  valuable,  is  limited.  There  are 
things  which  we  must  work  out  for  ourselves ;  for  the  new  industry 
is  much  farther  advanced  with  us,  and  much  more  firmly  estab- 
lished, than  with  the  older  peoples. 

The  particular  new  issue  on  which  we  can  get  the  most  guidance 
from  Europe,  and  which  is  therefore  the  simplest  of  all,  is  that  of 
conservation.  To  call  that  issue  a  question  would  be  a  misnomer. 
The  only  question  should  be  of  ways  and  means,  and  concerning  these 
it  will  be  some  time  before  we  exhaust  the  enlightenment  to  be  got 
from  European  experience.  In  the  matter  of  the  national  conserva- 
tion of  the  use  of  water-power,  we  have  in  the  example  of  Switzer- 
land an  admirable  object-lesson. 

Concerning  this  there  is  hardly  a  question ;  but  there  is  an  issue ; 
there  is  a  conflict,  a  struggle;  and  the  violence  and  magnitude  and 
difficulty  of  it  are  greater  than  anywhere  else  in  the  world.  That  is 
so  because  nowhere  else  are  private  interests  so  well  organized  or  so 
powerful,  and  nowhere  else  have  they  such  opportunities  to  acquire 
control  of  the  various  means  of  wealth.  There  is  thus  an  issue  be- 
tween the  permanent  public  weal  and  the  selfishness  of  individuals 
and  groups.  For  there  has  come  about  a  massing  of  great  and  little 
accumulations,  and  an  organization  of  capital  and  industry  under  a 
few  heads;  so  that  the  struggle  is  on  behalf  of  the  people  against 
the  combinations.  To  take  an  instance,  the  lumber  kings  were  not 
slow  to  see  how  rapidly  the  country  was  being  deforested.  They 
looked  ahead  and  bought  timber  lands  everywhere.  And  it  can 
hardly  be  questioned  that,  law  and  usage  remaining  what  they  are, 
the  same  forces  which  have  made  for  monopoly  and  against  compe- 
tition in  other  things  will  monopolize  the  country's  water-power  as 
well. 


PROBLEM  OF  SOCIAL  CONTROL  ill 

The  swift  and  universal  rise  in  prices  should  serve  to  awaken  us 
to  the  actual  state  of  industry  and  exchange  among  us.  Our  awaken- 
ing to  the  necessity  of  economy  is  still  but  a  part  of  the  greater 
awakening  to  the  true  extent  of  the  changes  which  have  come  about 
in  our  industrial  life.  The  field  is  so  vast  that  only  a  superficial 
glance  at  the  main  features  of  the  new  order  is  here  possible. 

The  most  striking  and  important  fact — a  fact  which  is  in  a  way 
inclusive  of  the  whole  matter — is  this :  Competition,  as  we  have 
known  it  in  the  past,  the  kind  of  competition  on  whose  existence  and 
continuance  our  law  and  usage  concerning  industry  and  property 
are  largely  based,  is  breaking  down.  Take  any  one  of  the  dozens  of 
articles  in  general  consumption,  and  thorough  investigation  will 
very  likely  disclose  that  real  and  vital  competition  no  longer  prevails 
in  its  production  or  distribution.  A  combination  of  manufacturers 
makes  it,  a  combination  of  common  carriers  fixes  the  charges  of 
transporting  it  to  market,  and  the  original  combination  names  the 
terms  upon  which  the  retail  dealers  may  handle  it.  If  investigations 
in  prices  go  far  enough  I  am  sure  they  will  also  disclose  such  com- 
binations in  the  smaller  communities  as  well.  The  dependence  of 
the  ordinary  shopkeepers  on  the  trusts  for  supplies  is  so  widespread 
that  the  old  law  of  competition  has  been  in  large  measure  nullified. 
The  consumers,  in  fact,  seem  to  be  the  only  industrial  group  which 
has  so  far  failed  to  combine.  It  is  impossible  not  to  feel  that  the 
tendency  is  so  universal  as  to  mean  unmistakably  a  new  industrial 
order. 

What  does  this  change  mean  for  the  individual  as  a  part  and 
member,  an  industrial  unit,  of  the  new  order?  Clearly,  it  means, 
and  it  must  continue  to  mean  until  the  system  is  somewhat  modi- 
fied in  his  interests,  less  independence,  a  narrower  range  of  oppor- 
tunity. There  is  no  reason  to  believe  that  it  means  on  the  whole 
less  comfort  or  a  lowered  standard  of  living.  The  contrary  is  more 
probably  true.  Neither  does  the  change  mean  that  the  man  of  ability 
and  ambition  cannot  rise.  He  can.  A  policy  of  promotions  for 
merit  is  plainly  to  the  interest  of  every  great  business.  That  great 
combinations  have  adopted  that  policy  is  the  principal  reason  why 
they  are  so  well  served.  But  these  things  do  not  rid  us  of  the  fact 
that  the  coming  of  the  new  order  has  meant  a  loss  of  independence, 
of  industrial  freedom  to  the  great  mass  of  individuals.  Their  chance 
to  rise  is  but  one  way — by  obedience  to  the  laws  of  the  system  to 
which  they  belong;  and  in  the  making  of  these  laws  they  have  no 


113  CURRENT  ECONOMIC  PROBLEMS 

voice.  There  is  real  independence  only  at  the  top ;  and  to  reach  the 
top  is  beyond  the  hopes  of  all  but  a  very  few.  Clearly  the  new  sys- 
tem is  less  democratic  than  the  old. 

But  to  get  a  fuller  conception  of  the  change,  we  must  go  to  the 
source  of  initiative  and  control  in  business,  to  the  men  who  direct 
the  capital  of  the  country.  For  the  principle  of  combination  has 
made  it  possible  for  a  few  great  capitalists  to  get  control  of  the 
accumulated  savings  of  hundreds  of  thousands  of  people  of  small 
means.  A  single  great  banking  concern  is  charged  with  the  direction 
of  some  six  billion  dollars  variously  invested,  in  manufacturing,  in 
banking,  in  transportation,  in  mines,  in  many  other  ways.  Such 
power  could  go  far  to  corrupt  the  press.  Less  power  has  already 
corrupted  legislatures ;  has  suborned  executives ;  has  reached  even 
the  courts. 

Here  is  but  the  merest  glance  at  the  new  conditions.  But  it  may, 
I  think,  be  sufficient  to  enable  us  to  formulate  the  new  issues.  We 
are  confronted  with  adapting  the  democratic  principle  to  conditions 
that  did  not  exist  when  American  democracy  arose :  that  is  to  say,  to 
a  field  no  longer  unlimited,  to  opportunities  no  longer  boundless,  and 
to  an  industrial  order  in  which  competition  is  no  longer  the  control- 
ling principle,  an  industrial  order  which  is,  therefore,  no  longer  dem- 
ocratic, but  increasingly  oligarchical.  To  save  itself  politically, 
democracy  must  therefore  extend  itself  into  this  field.  Plainly, 
therefore,  laissez-faire  can  no  longer  be  its  watchword.  That  was 
the  watchword  of  the  regime  of  competition.  Democracy's  task  is 
twofold.  It  must  secure  for  the  people  some  kind  of  effective,  ulti- 
mate control  over  the  natural  sources  of  all  wealth ;  and  it  must  also 
secure,  in  an  industrial  system,  no  longer  controlled  by  competition, 
protection  and  opportunity  for  the  individual. 

The  ancient  warfare  of  democracy  and  privilege  must  be  begun 
all  over  again,  and  with  new  tactics,  new  strategy.  In  the  presence 
of  the  new  issues  many  of  the  old  issues  will  be  altered.  The  old 
struggle  over  the  tariff  will  be  less  a  matter  of  sectional  issues,  less 
a  matter  of  contrary  economic  theories,  and  more  a  phase  of  the 
great  struggle  between  democracy  and  privilege.  The  old  constitu- 
tional questions,  thought  forever  settled,  will  reappear  in  new  forms. 
The  rights  and  powers  of  both  the  states  and  the  nation  must  be 
scrutinized  afresh.  Before  the  end  we  may  have  to  go  still  farther 
back  and  find  for  the  common  law  itself,  if  not  new  principles,  at 
any  rate,  new  formulas.  For  I  doubt  if  we  shall  end  before  we  have 
revised  many  of  what  we  thought  our  fundamental  conceptions  of 
property  and  of  human  rights. 


PROBLEM  OF  SOCIAL  CONTROL  113 

F.  THE  THEORY  AND  PROGRAM  OF  SOCIAL 
CONTROL 

55.     The   Individualistic   Basis  of   Social  ControP' 

BY  THOMAS  HILL  GREEN 

Freedom  is  valuable  only  as  a  means  to  an  end.  That  end  is  the 
liberation  of  the  powers  of  all  men  equally  for  contributions  to  a 
common  good.  No  one  has  a  right  to  do  what  he  will  with  his  own 
in  such  a  way  as  to  contravene  that  end.  It  is  only  through  the  guar- 
anty society  gives  him  that  he  has  property  at  all.  This  guaranty  is 
founded  on  a  sense  of  common  interests.  Everyone  has  an  interest 
in  securing  to  everyone  else  the  free  use  and  enjoyment  and  disposal 
of  his  possessions,  because  such  freedom  contributes  to  that  equal 
development  of  the  faculties  of  all  which  is  the  highest  good  for  all. 
This  is  the  true  and  only  justification  of  the  rights  of  property. 
Property  being  only  justifiable  as  a  means  to  the  free  exercise  of 
the  social  capabilities  of  all,  there  can  be  no  true  right  of  property 
of  a  kind  which  debars  one  class  of  men  from  such  free  exercise 
altogether.  We  condemn  slavery  no  less  when  it  rises  out  of  volun- 
tary agreement  on  the  part  of  the  enslaved  person.  A  contract  by 
which  anyone,  agreed  for  a  certain  consideration  to  become  the  slave 
of  another  person  we  would  reckon  a  void  contract.  Here,  then,  is 
a  limitation  upon  freedom  of  contract  that  we  all  recognize  as  right- 
ful. No  contract  is  valid  in  which  human  persons  are  dealt  with  as 
commodities,  because  such  contracts  of  necessity  defeat  the  end  for 
which  alone  society  enforces  contracts  at  all. 

Are  there  no  other  contracts  which,  less  obviously  perhaps,  but 
really,  are  open  to  the  same  objection?  Let  us  consider  contracts 
affecting  labor.  Labor,  the  economist  tells  us,  is  a  commodity  ex- 
changeable like  other  commodities.  This  is  in  a  certain  sense  true, 
but  it  is  a  commodity  which  attaches  in  a  peculiar  manner  to  the 
person  of  man.  Hence  restrictions  may  need  to  be  placed  on  its  sale 
which  would  be  unnecessary  in  other  cases,  to  prevent  it  from  being 
sold  under  conditions  which  make  it  impossible  for  the  person  selling 
it  ever  to  become  a  free  contributor  to  social  good  in  any  form. 
This  is  most  plainly  the  case  where  a  man  bargains  to  work  under 
conditions  fatal  to  health.  Every  injury  to  the  health  of  the  indi- 
vidual is,  so  far  as  it  goes,  a  public  injury.  It  is  an  impediment  to 
the  general  freedom;  so  much  deduction  from  our  power,  as  mem- 
bers of  society,  to  make  the  best  of  ourselves.     Society,  therefore, 

"Adapted  from   the  "Lecture  on  Liberal  Legislation  and  Freedom  of 
Contract,"  in  Works,  III,  372-386.    Edited  by  R.  L.  Nettleship  (1880). 


114  CURRENT  ECONOMIC  PROBLEMS 

is  plainly  in  its  right  when  it  limits  freedom  of  contract  for  the  sale 
of  labor,  so  far  as  is  done  by  laws  for  the  sanitation  of  factories  and 
mines. 

It  is  equally  within  its  right  in  prohibiting  the  labor  of  women 
and  young  persons  beyond  certain  hours.  If  they  work  beyond 
these  hours,  the  result  is  demonstrably  physical  deterioration,  which 
carries  with  it  a  lowering  of  the  moral  forces  of  society.  For  the 
sake  of  the  general  freedom  of  its  members  to  make  the  best  of  them- 
selves, which  it  is  the  object  of  civil  society  to  secure,  a  prohibition 
should  be  put  on  all  such  contracts  of  service  as  in  a  general  way 
yield  such  a  result.  The  purchase  and  hire  of  unwholesome  dwell- 
ings are  properly  forbidden  on  the  same  principle. 

Its  application  to  compulsory  education  may  not  be  quite  so  ob- 
vious, but  it  jvill  appear  on  a  little  reflection.  Without  a  command 
of  certain  elementary  arts  and  knowledge,  the  individual  in  modern 
society  is  as  effectually  crippled  as  by  the  loss  of  a  limb  or  a  broken 
constitution.  With  a  view  to  securing  freedom  among  its  members 
it  is  certainly  within  the  province  of  the  state  to  prevent  children 
from  growing  up  in  that  kind  of  ignorance  which  practically  ex- 
cludes them  from  a  free  career  in  life. 

Just  as  labor,  though  an  exchangeable  commodity,  differs  from 
all  other  commodities,  land,  too,  has  its  characteristics)  which  distin- 
guish it  from  ordinary  commodities.  It  is  from  the  land  that  the 
raw  material  of  all  wealth  is  obtained.  It  is  only  upon  the  land  that 
we  can  live ;  only  across-  the  land  that  we  can  move  from  place  to 
place.  The  state,  therefore,  in  the  interest  of  that  public  freedom 
which  it  is  its  business  to  maintain,  cannot  allow  the  individual  to 
deal  as  he  likes  with  his  land  to  the  same  extent  to  which  it  allows 
him  to  deal  with  other  commodities.  It  is  an  established  principle 
that  the  sale  of  land  should  be  enforced  by  law  when  public  con- 
venience requires  it.  The  landowner  of  course  gets  the  full  value 
of  the  land  which  he  is  compelled  to  sell,  but  of  no  other  ordinary 
commodity  is  the  sale  thus  enforced.  This  illustrates  the  peculiar 
necessity  in  the  public  interest  of  putting  some  restrictions  on  a 
man's  liberty  of  doing  what  he  will  with  his  own.  The  question  is 
whether,  in  the  same  interest,  further  restraint  does  not  need  to  be 
imposed  on  the  liberty  of  the  landowner.  Should  not  the  state  for 
public  purposes  prevent  the  land  from  being  tied  up  in  a  manner 
which  prevents  its  natural  distribution  and  keeps  it  in  the  hands  of 
those  who  cannot  make  the  most  of  it  ?  It  is  so  settled  that  at  present 
all  the  land  necessarily  goes  to  the  owner's  eldest  son.  The  evil 
effects  of  this  system  are  twofold.  It  almost  entirely  prevents  the 
sale  of  agricultural  land  in  small  quantities,  and  thus  hinders  that 


PROBLEM  OF  SOCIAL  CONTROL  115 

mainstay  of  social  order,  a  class  of  small  proprietors  tilling  their  own 
land.  It  also  keeps  large  quantities  of  land  in  the  hands  of  men  who 
are  too  much  burdened  by  debts  to  improve  it.  The  landlord  in  such 
cases  has  not  the  money  to  improve,  the  tenant  has  not  the  security 
which  would  justify  him  in  improving.  On  the  simple  and  recog- 
nized principle  that  no  man's  land  is  his  own  for  purposes  incom- 
patible with  the  public  convenience,  we  ask  that  legal  sanction  should 
be  withheld  from  settlements  which  interfere  with  the  distribution 
and  improvement  of  land. 

To  uphold  the  sanctity,  of  contracts  is  doubtless  a  prime  business 
of  government,  but  it  is  no  less  its  business  to  provide  against  con- 
tracts being  made,  which,  from  the  helplessness  of  one  of  the  parties 
to  them,  instead  of  being  a  security  for  freedom,  becomes  an  instru- 
ment of  disguised  oppression.  Men  are  not  at  liberty  to  buy  and 
sell  when  they  will,  where  they  will,  and  as  they  will.  There  is  no 
right  to  freedom  in  the  sale  or  purchase  of  a  particular  commodity, 
if  the  general  result  of  allowing  such  freedom  is  to  detract  from 
freedom  in  the  higher  sense,  from  the  general  power  of  men  to  make 
the  best  of  themselves.  The  danger  of  legislation,  either  in  the  in- 
terests of  a  particular  class  or  for  the  promotion  of  particular  re- 
ligious opinions,  we  may  fairly  assume  to  be  over.  The  popular 
jealousy  of  law  is  out  of  date. 

• 

56.     Social  Reform  and  Self-Reliance^® 

BY  W.  LYON  BLEASE 

The  philosophical  argument  against  Social  Reform  which  has 
most  weight  is  that  by  helping  individuals  the  State  deprives  them 
of  the  disposition  to  help  themselves,  and  they  tend  to  rely  more  and 
more  upon  the  social  organization  and  less  and  less  upon  themselves. 
Everj'thing  in  the  way  of  public  assistance  is  thus  regarded  with 
suspicion.  To  feed  school-children  is  to  weaken  parental  responsi- 
bility. To  raise  wages  by  legislation  is  as  demoralizing  as  to  dis- 
tribute doles.  To  offer  a  pension  of  five  shillings  a  week  in  old  age 
is  to  discourage  thrift  in  youth.  It  is  therefore  better  in  the  end 
that  poverty  should  be  allowed  to  run  its  course  than  that  a  mis- 
directed benevolence  should  demoralize  the  people.  This  argument, 
reproducing  the  logical  individualism  of  the  Utilitarians,  has  been 
greatly  strengthened  by  Darwinism.  Herbert  Spencer  has  thus 
applied  the  theon,'^  of  evolution  to  political  affairs.  "The  well-being 
of  existing  humanity,  and  the  unfolding  of  it  into  ultimate  perfection, 

'"Adapted  from  A  Short  History  of  English  Liberalism,  327-341.  Copy- 
right by  T.  Fisher  Unwin   (1912). 


ii6  CURRENT  ECONOMIC  PROBLEMS 

are  both  secured  through  the  same  benificent,  though  severe,  disci- 
pline to  which  the  animate  creation  at  large  is  subject;  a  felicity- 
pursuing  law  which  never  swerves  for  the  avoidance  of  partial  and 
temporary  suffering. .  The  poverty  of  the  incapable,  the  distresses 
that  come  upon  the  imprudent,  the  starvation  of  the  idle,  and  those 
shoulderings  aside  of  the  weak  by  the  strong,  which  leave  so  many 
in  shallows  and  in  miseries,  are  the  decree  of  a  large,  far-seeing 
benevolence." 

Yet,  if  there  is  one  thing  that  most  distinguishes  modern  from 
ancient  society,  and  society  of  any  kind  from  the  disorganized  exist- 
ence of  primitive  man,  it  is  the  prevalence  of  the  idea  that  we  are, 
in  some  measure,  responsible  for  the  condition  of  our  neighbors. 
It  would  be  at  least  surprising  that  the  salvation  of  the  race  should 
now  be  found  to  lie  in  a  deliberate  reaction,  against  the  movement 
of  countless  ages,  towards  the  state  of  undisciplined  human  egotism. 
A  doctrine  so  repugnant  to  what  we  have  been  accustomed  to  regard 
as  our  better  feelings  requires  little  examination  to  discover  its  fal- 
lacies. 

The  evolutionary  argument  against  Social  Reform  falls  to  the 
ground  when  it  is  once  admitted  that  the  individuals  in  contempla- 
tion are  individuals  organized  in  society,  and  that  it  is  only  so  long 
as  they  are  organized  that  development,  as  we  understand  it,  can 
take  place.  If  mankind  were  left  to  scramble  for  such  good  things 
as  it  could  get  without  cooperation,  the  race  would  no  doubt,  in 
course  of  time,  develop  such  characteristics  as  that  competition 
would  allow  to  survive.  But  if  we  erect  higher  standards,  and  re- 
quire, even  from  selfish  motives,  the  moral,  intellectual,  and  physical 
benefits  which  only  organization,  culture,  and  the  communication  of 
ideas  will  produce,  the  comparison  between  human  beings  and  the 
rest  of  the  animate  creation  is  useless  for  our  purpose.  Some  limit- 
ation of  the  struggle  for  existence  is  obviously  needed,  if  we  are 
not  to  fall  back  to  the  level  where  only  the  brute  qualities  of  strength, 
swiftness,  and  cunning  are  of  value.  Once  we  admit  the  need  of  a 
social  organization,  which  involves  a  very  considerable  check  on 
mechanical  evolution  by  the  survival  of  the  fittest,  the  only  con- 
troversy is  about  the  extent  and  character  of  the  limits  on  competi- 
tion and  not  about  their  existence. 

But  the  argument  for  Social  Reform  is  not  based  only  upon  the 
possibility  of  altering  environment  so  that  individuals  who  are  unfit 
for  it  may  maintain  themselves  as  long  as  they  live.  It  is  not  the 
incapable  who  are  poor.  It  is  not  only  the  imprudent  who  are  over- 
come by  distress.  It  is  not  only  the  idle  who  starve.  Bad  conditions 
of  life  destroy  not  only  the  inefficient,  but  the  efficient.     He  is  a 


PROBLEM  OF  SOCIAL  CONTROL  117 

very  dull  and  stupid  observer  who  supposes  that  all  the  slovenly, 
debauched,  and  criminal  men  and  women  whom  he  sees  around  him 
are  what  they  are  because  of  their  innate  qualities.  A  bad  environ- 
ment does  not  merely  destroy  the  inefficient,  it  manufactures  them ; 
and  it  is  as  reasonable  to  oppose  social  reform  because  it  prevents 
the  elimination  of  the  unfit,  as  it  would  be  to  defend  excessive  eating 
and  drinking,  or  sitting  in  wet  clothes.  Unhealthy  eating  would  no 
doubt  destroy  people  with  weak  stomachs,  but  for  every  one  who 
perished  in  this  struggle  with  environment  there  would  be  ten  who 
survived.  Bad  housing  and  bad  wages  produce  the  same  results  as 
bad  habits.  An  ill-fed  girl  becomes  the  mother  of  weakly  children. 
Casual  labor  kills  only  after  it  has  given  birth  to  an  incalculable 
amount  of  laziness,  vice,  and  mental  disorder.  The  elimination  of 
the  unfit  is  uncertain  and  capricious.  The  deterioration  of  the  fit 
is  certain  and  remorseless.  Reform  is  thus  the  only  possible  means 
for  discovering  what  individuals  are  fit  in  the  human  sense.  It  is 
only  when  all  have  a  chance  of  survival  that  we  can  distinguish 
between  efficient  and  inefficient.  The  reformer  is  only  evolution 
conscious  of  itself. 

This  elaboration  of  social  control  is  not  inconsistent  with  such 
competition  as  is  necessary  for  the  development  of  character,  and. 
for  the  production  of  the  wealth  which  is  distributed  among  the 
members  of  society.  It  is  not  Socialism.  It  removes  only  some  of 
the  risks  of  failure,  and  only  those  which  are  beyond  individual  con- 
trol. No  man  is  made  less  thrifty  because  at  the  age  of  seventy  he 
will  receive  five  shillings  a  wedc.  No  man  works  the  better  for 
knowing  that,  if  he  is  ever  ill  for  a  month,  he  and  his  family  will 
never  be  free  again,  or  will  work  the  worse  for  knowing  that  his 
home  will  be  kept  together  until  he  is  able  once  more  to  support  it 
by  his  own  exertions.  No  woman  gets  any  virtue  out  of  working 
fifteen  hours  a  day  for  seven  days  a  wedc,  with  the  knowledge  that 
even  then  she  will  not  earn  enough  to  keep  herself  in  food  and  cloth- 
ing without  recourse  to  charity  or  prostitution,  and  her  character 
will  not  be  deteriorated  when  a  level  is  fixed  below  which  her  wages 
cannot  fall.  The  benefit  of  competition  remains.  The  disasters  in- 
evitably attendant  on  it  are  averted.  The  poorer  people  no  longer 
wrestle  on  the  brink  of  an  unfenced  precipice. 

We  do  not  want  to  see  impaired  the  vigor  of  competition,  but  we 
can  do  much  to  mitigate  the  consequences  of  failure.  We  want  to 
draw  a  line  below  which  we  will  not  allow  persons  to  live  and  labor. 
We  want  to  have  free  competition  upward.  We  do  not  want  to  pull 
down  the  structures  of  science  and  civilization ;  but  to  spread  a  net 
over  an  abyss.    Our  aim  is  not  to  abolish  competition.    Competition 


Ii8  CURRENT  ECONOMIC  PROBLEMS 

will  always  be  powerful  enough.  But  to  limit  the  strife — to  fix  a 
ring  around  the  prize-fight — to  protect  the  vital  parts  from  the  blows 
of  the  combatants.  Individual  growth  can  only  take  place  in  compe- 
tition. But  it  is  not  necessary  that  failure  in  competition  should  be 
mortal.  The  struggle  of  competition  is  to  go  on.  But  it  is  not  to  go 
on  to  the  death.  Economic  society  is  to  be  converted  into  a  gigantic 
Trade  Union,  based  upon  the  belief  that  the  highest  good  of  the  indi- 
vidual can  only  be  secured  in  cooperation  with  his  fellows,  and  limit- 
ing his  freedom  only  in  so  far  as  it  is  necessary  to  secure  freedom  to 
his  associates. 

57.     Laissez-Faire  in  Practice^^ 

BY  L.  T.  HOBHOUSE 

In  the  main,  the  teaching  of  the  school  tended  to  a  restricted 
view  of  the  function  of  government.  Government  had  to  maintain 
order,  to  restrain  men  from  violence  and  fraud,  to  hold  them  secure 
in  person  and  property  against  foreign  and  domestic  enemies,  that 
they  might  rely  upon  reaping  where  they  had  sown,  and  might  enjoy 
the  fruits  of  their  industry. 

The  factory  system  early  brought  matters  to  a  head  at  one 
point  by  the  systematic  employment  of  women  and  young  children 
under  conditions  which  outraged  the  public  conscience  when  they 
became  known.  In  the  case  of  children  it  was  admitted  that  the 
principle  of  free  contract  could  not  apply.  It  left  the  child  to  be 
exploited  by  the  employer  in  his  own  interest.  But  this  principle 
admitted  of  great  extension.  If  the  child  was  helpless,  was  the 
grown-up  person,  man  or  woman,  in  a  much  better  position?  Here 
was  the  owner  of  a  mill  employing  five  hundred  hands.  Here  was 
an  operative  possessed  of  no  alternative  means  of  subsistence  seek- 
ing employment.  Suppose  them  to  bargain  as  to  terms.  If  the 
bargain  failed  the  employer  lost  one  man.  At  worst  he  might  have 
a  little  difficulty  for  a  day  or  two  in  working  a  single  machine. 
During  the  same  days  the  operative  might  have  nothing  to  eat, 
and  might  see  his  children  going  hungry.  Where  was  the  effective 
liberty  in  such  an  arrangement?  In  the  matter  of  contract  true 
freedom  postulates  substantial  equality  between  the  parties.  In  pro- 
portion as  one  party  is  in  a  position  of  advantage  he  is  able  to 
dictate  the  terms.  In  proportion  as  the  other  party  is  in  a  weak 
position,  he  must  accept  unfavorable  terms.  Hence  the  truth  of 
Walker's  dictum  that  economic  injuries  tend  to  perpetuate  them- 

^^ Adapted   from  Liberalism,  81-101.     Copyright  by  Henry  Holt  &  Co. 
(1911). 


PROBLEM  OF  SOCIAL  CONTROL  119 

selves.  For  purposes  of  legislation  the  state  began  with  the  child, 
where  the  case  was  overwhelming.  It  went  on  to  include  the  young 
person  and  the  woman.  It  drew  the  line  at  the  adult  male,  and 
it  is  only  within  our  own  time  that  legislation  has  avowedly  under- 
taken the  task  of  controlling  the  conditions  of  industry.  To  this  it 
has  been  driven  by  the  manifest  teachings  of  experience  that  liberty 
without  equality  is  a  name  of  noble  sound  and  squalid  result. 

In  place  of  the  system  of  unfettered  agreement  contemplated, 
the  industrial  system  which  has  actually  grown  up  and  is  in  pro- 
cess of  further  development  rests  on  conditions  prescribed  by  the 
state.  The  law  provides  for  the  safety  of  the  worker  and  sanitary 
conditions  of  employment.  It  prescribes  the  length  of  the  working 
day  for  women  and  children.  In  the  future  it  will  probably  deal 
freely  with  the  hours  for  men.  It  makes  employers  liable  for  in- 
juries suffered  by  operatives.  Within  these  limits  it  allows  freedom 
of  contract. 

The  theory  of  laissez-faire  asumed  that  the  state  would  hold 
the  ring.  It  would  suppress  force  and  fraud,  keep  property  safe,  and 
aid  men  in  enforcing  contracts.  On  these  conditions  men  should 
be  absolutely  free  to  compete  with  each  other,  so  that  their  best 
energies  should  be  called  forth.  But  why,  on  these  conditions,  just 
these,  and  no  others?  Why  should  the  State  insure  protection  of 
person  and  property?  The  time  was  when  the  strong  man  armed 
kept  his  goods,  and  incidentally  his  neighbor's  goods  too,  if  he  could 
get  hold  of  them.  Why  should  the  State  intervene  to  do  for  a 
man  that  which  his  ancestors  did  for  themselves?  Why  should  a 
man  who  has  been  soundly  beaten  in  physical  fight  go  to  a  public 
authority  for  redress  ?  How  much  more  manly  to  fight  his  own  battle. 
Was  it  not  a  kind  of  pauperization  to  make  men  secure  in  person 
and  property,  through  no  efforts  of  their  own,  by  the  agency  of  a 
state  machinery  operating  over  their  heads?  Would  not  a  really 
consistent  individualism  abolish  this  machinery?  "But,"  the  advo- 
cate of  laissez-faire  may  reply,  "the  use  of  force  is  criminal,  and 
the  state  must  suppress  crime."  So  men  held  in  the  ninteenth  cen- 
tury. But  there  was  an  earlier  time  when  they  did  not  take  this 
view,  but  left  it  to  individuals  and  their  kinsfolk  to  revenge  their 
own  injuries.  Was  not  this  a  time  of  more  unrestrained  indi- 
vidual liberty.  On  what  principle  then  is  the  line  drawn,  so  as  to 
specify  certain  injuries  which  the  State  may  prohibit  and  to  mark 
off  others  which  it  must  leave  untouched? 

Individualism  as  ordinarily  understood,  not  only  takes  the  police- 
man and  the  law  court  for  granted.  It  also  takes  the  rights  of 
property  for  granted.    But  what  is  meant  by  the  rights  of  property  ? 


I20  CURRENT  ECONOMIC  PROBLEMS 

In  ordinary  use  the  phrase  means  just  that  system  to  which  lon» 
usage  has  accustomed  us.  This  is  a  system  by  which  a  man  is  free 
to  acquire  by  any  method  of  production  or  exchange,  within  the 
limits  of  the  law,  whatever  he  can  of  land,  consumable  goods,  or 
capital ;  to  dispose  of  it  at  his  own  will  and  pleasure  for  his  own 
purposes,  to  destroy  it  if  he  likes,  to  give  it  away  or  sell  it  as  it 
suits  him,  and  at  death  to  bequeath  it  to  whomsoever  he  will.  The 
vState  can  take  a  part  of  a  man's  property  by  taxation.  But  in  all 
taxation  the  State  is  taking  something  from  a  man  which  is  "his," 
and  in  so  doing  is  justified  only  by  necessity.  In  many  ways,  in 
the  face  of  actual  conditions,  the  individualist  has  been  driven  to  a 
change  in  property  rights  in  the  direction  of  greater  social  control. 
The  school  of  Henry  George,  individualists  though  they  be,  would 
purge  the  social  system  of  the  private  ownership  of  land.  This 
alone,  say  they,  will  insure  genuine  freedom  to  all  individuals. 

Thus  individualism,  when  it  grapples  with  the  facts,  is  driven  no 
small  distance  towards  state  regulation.  Once  again  we  have  found 
that  to  maintain  individual  freedom  and  equality  we  have  to  extend 
the  sphere  of  social  control.  We  cannot  assume  any  of  the  rights 
of  property  as  axiomatic.  We  must  look  at  their  actual  workings 
and  consider  how  they  affect  the  life  of  society. 

58.    A  Program  of  Social  Reform^' 

BY  WOODROW  WIIwSON 

We  see  that  in  many  things  our  national  life  is  very  great.  It 
it  incomparably  great  in  its  material  aspects,  in  its  body  of  wealth, 
in  the  diversity  and  sweep  of  its  energy,  in  the  industries  which  have 
been  conceived  and  built  up  by  the  genius  of  individual  men  and  the 
limitless  enterprises  of  groups  of  men. 

It  is  great,  also,  very  great,  in  its  moral  force.  Nowhere  else  in 
the  world  have  noble  men  and  women  exhibited  in  more  striking 
forms  the  beauty  and  the  energy  of  sympathy  and  helpfulness  and 
counsel  in  their  efforts  to  rectify  wrong,  alleviate  suffering,  and  set 
the  weak  in  the  way  of  strength  and  hope. 

We  have  built  up,  moreover,  a  great  system  of  government, 
which  has  stood  through  a  long  age  as  in  many  respects  a  model 
for  those  who  seek  to  set  liberty  upon  foundations  that  will  endure 
against  fortuitous  change,  against  storm  and  accident.  Our  life 
contains  every  great  thing,  and  contains  it  in  rich  abundance. 

But  the  evil  has  come  with  the  good,  and  much  of  the  fine  gold 
has  been  corroded. 

"Adapted  from  the  Inaugural  Address,  March  4,  1913. 


PROBLEM  OF  SOCIAL  CONTROL  I2i 

With  riches  has  come  inexcusable  waste.  We  have  squandered 
a  great  part*  of  what  we  might  have  used,  and  have  not  stopped  to 
conserve  the  exceeding  bounty  of  nature,  without  which  our  genius 
for  enterprise  would  have  been  worthless  and  impotent,  scorning 
to  be  careful  as  well  as  admirably  efficient. 

We  have  been  proud  of  our  industrial  achievements,  but  we  have 
not  hitherto  stopped  thoughtfully  enough  to  count  the  human  cost, 
the  cost  of  lives  sniffed  out,  of  energies  overtaxed  and  broken,  the 
fearful  physical  and  spiritual  cost  to  the  men  and  women  and  chil- 
dren upon  whom  the  dead  weight  and  burden  of  it  all  has  fallen 
piteously  the  years  through. 

The  groans  and  agony  of  it  all  had  not  yet  reached  our  ears,  the 
solemn,  moving  undertone  of  our  life,  coming  up  out  of  the  mines 
and  factories  and  out.  of  every  home  where  the  struggle  had  its  inti- 
mate and  familiar  seat.  With  the  great  government  went  many 
deep  secret  things  which  we  too  long  delayed  to  look  into  and  scru- 
tinize with  candid,  fearless  eyes. 

The  great  government  we  love  has  too  often  been  made  use 
of  for  private  and  selfish  purposes ;  and  those  who  used  it  had  for- 
gotten the  people. 

There  has  been  something  crude  and  heartless  and  unfeeling  in 
our  haste  to  succeed  and  be  great.  Our  thought  has  been,  "Let 
every  man  look  out  for  himself,  let  every  generation  look  out  for 
itself,"  while  we  reared  giant  machinery  which  made  it  impossible 
that  any  but  those  who  stood  at  the  levers  of  control  should  have  a 
chance  to  look  out  for  themselves.  We  had  not  forgotten  our  mor- 
als.   But  we  were  very  restless  and  in  a  hurry  to  be  great. 

We  have  now  come  to  the  sober  second  thought.  The  scales  of 
heedlessness  have  fallen  from  our  eyes.  We  have  made  up  our 
minds  to  square  ever>'  process  of  our  national  life  again  with  the 
standards  we  so  proudly  set  up  at  the  beginning  and  have  always 
carried  at  our  hearts.    Our  work  is  a  work  of  restoration. 

We  have  itemized  with  some  d^ree  of  particularity  the  things 
that  ought  to  be  altered,  and  here  are  some  of  the  chief  items : 

A  tariff  which  cuts  us  off  from  our  proper  part  in  the  commerce 
of  the  world,  violates  the  just  principles  of  taxation,  and  makes  the 
government  a  facile  instrument  in  the-  hands  of  private  interests ; 

A  banking  and  currency gcystem  based  upon  the  necessity  of  the 
government  to  sell  its  bonds  hfty  years  ago,  and  perfectly  adapted  to 
concentrating  cash  and  restricting  credits ; 

And  industrial  system  which,  take  it  on  all  its  sides,  financial  as 
well  as  administrative,  holds  capital  in  leading  strings,  restricts  the 


122  CURRENT  ECONOMIC  PROBLEMS 

liberties,  and  limits  the  opportunities  of  labor,  and  exploits  without 
renewing  or  conserving  the  natural  resources  of  the  coilntry. 

A  body  of  agricultural  activities  never  yet  given  the  efficiency  of 
great  business  undertakings  or  served  as  it  should  be  through  the 
instrumentality  of  science  taken  directly  to  the  farm  or  afforded  the 
facilities  of  credit  best  suited  to  its  practical  needs. 

Watercourses  undeveloped,  waste  places  unreclaimed,  forests  un- 
tended,  fast  disappearing,  without  plan  or  prospect  of  renewal,  un- 
regarded waste  heaps  at  every  mine. 

We  have  studied  as  perhaps  no  other  nation  has  the  most  effec- 
tive means  of  production,  but  we  have  not  studied  cost  or  economy 
as  we  should  either  as  organizers  of  industry,  as  statesmen,  or  as 
individuals. 

Nor  have  we  studied  and  perfected  the  means  by  which  govern- 
ment may  be  put  at  the  service  of  humanity,  in  safeguarding  the 
health  of  the  nation,  the  health  of  its  men  and  its  women  and  its 
children,  as  well  as  their  rights  in  the  struggle  for  existence.  This 
is  no  sentimental  duty.  The  firm  basis  of  government  is  justice,  not 
pity.    These  are  matters  of  justice. 

There  can  be  no  equality  of  opportunity,  the  first  essential  of 
justice  in  the  body  politic,  if  men  and  women  and  children  be  not 
shielded  in  their  lives,  their  very  vitality,  from  the  consequences  of 
great  industrial  and  social  processes  which  they  cannot  alter,  con- 
trol, or  singly  cope  with. 

Society  must  see  to  it  that  it  does  not  itself  crush  or  weaken  or 
damage  its  own  constituent  parts.  The  first  duty  of  law  is  to  keep 
sound  the  society  it  serves. 

Sanitary  laws,  pure  food  laws  and  laws  determining  conditions 
of  labor  which  individuals  are  powerless  to  determine  for  them- 
selves are  intimate  parts  of  the  very  business  of  justice  and  legal 
efficiency. 

These  are  some  of  the  things  we  ought  to  do,  and  not  leave  the 
others  undone, — the  old-fashioned,  never-to-be-neglected,  funda- 
mental safeguarding  of  property  and  of  individual  right. 

We  shall  deal  with  our  economic  system  as  it  is  and  as  it  may  be 
modified,  not  as  it  might  be  if  we  had  a  clean  sheet  of  paper  to 
write  upon ;  and  step  by  step  we  shall  make  it  what  it  should  be, 
in  the  spirit  of  those  who  question  theiifcown  wisdom  and  seek  coun- 
sel and  knowledge,  not  shallow  self-satisfaction  or  the  excitement 
of  excursions  whither  they  cannot  tell.  Justice,  and  only  justice, 
shall  always  be  our  motto.  And  yet  it  will  be  no  cool  process  of 
mere  science.    The  nation  has  been  deeply  stirred,  stirred  by  a  sol- 


PROBLEM  OP  SOCIAL  CONTROL  123 

emn  passion,  stirred  by  the  knowledge  of  wrong,  of  ideals  lost,  of 
government  too  often  debauched  and  made  an  instrument  of  evil. 

G.    CONSERVATIVE  FACTORS  IN  DEVELOPMENT  OF 
SOCIAL  CONTROL 

59.    Arrested  Constitutional  Development" 

BY  MYRON  T.  WaTKINS 

As  the  thought  and  conduct  of  a  people,  reflecting  and  reacting 
upon  their  material  conditions,  are  ever  in  flux,  it  follows  that  the 
ability  to  crystallize  their  thought  into  law  with  a  fair  degree  of 
spontaneity  is  the  condition  of  a  stable  institutional  development. 
But  the  government  of  this  countr}-^  was  conceived  at  a  time  when 
the  individual  was  too  far  in  the  ascendent,  when  there  was  too  little 
need  of  state  activity,  and  when  man  had  too  freshly  in  mind  the 
tyranny  of  England,  for  any  opinion  other  than  that  government  is 
a  necessary  evil  to  find  expression  in  the  American  system.  The 
government,  accordingly,  was  to  be  hampered  at  every  turn  in  the 
exercise  of  its  authority.  It  was,  moreover,  considered  to  be  like  a 
machine  whose  function  must  be  now  and  forevermore  the  same. 
Consequently  it  was  believed  that  an  arrangement  of  the  parts  that 
permitted  the  very  limited  functioning  then  needed  should  be  fixed 
and  made  impervious  to  any  subsequent  change  which  might  contem- 
plate a  wider  functioning.  For  had  they  not  clearly  in  mind  the 
evils  attendant  upon  the  exercise  of  large  powers  by  the  state? 

With  this  attitude  toward  government  and  law,  the  framers  of 
the  American  government  provided  a  rigid  separation  of  the  de- 
partments of  government,  an  inflexible  amendment  clause,  and  a 
comprehensive  Bill  of  Rights.  Under  the  separation  of  depart- 
ments, there  may  be  three  very  divergent  policfes  all  seeking  to 
operate  at  the  same  time.  Since  the  sponsors  of  none  are  respon- 
sible for  the  efficient  functioning  of  the  whole,  and  since  there  are 
no  provisions  for  a  means  of  co-ordination,  it  is  apparent  that  the 
exercise  of  social  control  is  very  difficult.  This  lack  of  means  of  co- 
operation makes  it  possible,  in  almost  any  case,  for  any  one  of  the 
three  powers,  from  either  conservatism,  jealousy,  or  irresponsibility, 
to  inhibit  the  operation  of  any  administrative  instrument  or  law, 
and  thus  make  social  control  ineffectual  if  not  impossible.  An  in- 
flexible amending  clause  is  an  expression  of  the  belief  that  the 
functions  of  government  do  not  change.  This  makes  an  extension  of 
state  powers  to  protect  social  interests  very  difficult. 

''Adapted  from  an  unpublished  essay  entitled,  "The  Regulation  of  Com- 
petition, a  Means  of  Adjusting  Industrial  Development  to  Social  Ideals." 


124  CURRENT  ECONOMIC  PROBLEMS 

The  Bill  of  Rights  was  conceived  to  be  an  embodiment  of  all 
the  "immutable  laws  of  nature,"  which  by  some  divine  guidance  the 
English-speaking  peoples  had  struck  upon.  In  fact,  there  are  parts 
of  these  guaranties  which  have  been  so  construed  as  to  provide  im- 
munities quite  inapplicable  to  any  other  than  a  frontier  society — 
where  all  men  are  economic  "prime-movers,"  and  where  the  limits 
to  the  improvement  of  land  are  unrealized.  One  illustration  will 
suffice.  That  part  of  the  Fifth  Amendment  which  declares  that 
"no  person  shall  be  deprived  of  .  .  .  property  without  due 
process  of  law,"  while  just  and  necessary  if  interpreted  in  view  of 
the  existing  conditions,  may  operate  to  effect  the  very  thing  which  it 
was  intended  to  prevent,  if  applied  without  reference  to  a  possible 
change  in  what  constitutes  property.  Thus  an  act  prohibiting  cer- 
tain employers  from  discharging  employees  because  of  membership 
in  a  labor  organization  was  declared  unconstitutional,^*  on  the 
ground  that  the  actions  prohibited  are  part  of  the  liberty  of  the  em- 
ployer protected  by  the  Constitution  from  limitation  or  regulation. 
Regardless  of  the  technical  merits  of  the  decision,  it  manifests  the 
disposition  on  the  part  of  the  courts  to  consider  the  relation  of  em- 
ployer and  employee  as  it  was  on  the  frontier  when  there  was  much 
more  equality  of  bargaining  power. 

The  chief  reason  for  our  inability  to  secure  needed  social  con- 
trol has  been  that  our  political  institutions  have  been  hampered  with 
defined,  fixed,  legal  rights.  As  a  result  we  have,  on  one  hand,  a  gov- 
ernment which  undertakes  any  action  haltingly  lest  it  overstep  the 
bounds  of  its  narrow  function,  or  disturb  the  equilibrium  of  its  self- 
imposed  parts,  and,  on  the  other  hand,  a  declaration  of  principles 
capable  of  wide  or  changing  application,  or  of  narrow  and  strict 
application.  The  result  has  been  an  ultra-conservative  interpretation 
of  rights  and  responsibilities  by  each  of  the  three  organs  of  govern- 
ment; each,  fearing  from  its  own  jealous  traditions  to  depart  from 
its  historic  construction  of  powers  by  conceiving  larger  functions  for 
themselves.  If  the  state  could  have  functioned  as  an  organic  whole, 
there  seems  no  reason  to  believe  that  the  rights  and  responsibilities 
embodied  in  the  Bill  of  Rights  would  have  been  so  arrested  in  their 
development. 

60.     The  Anti-Paternalism  of  the  Government^" 

Paternalism,  whether  state  or  federal,  as  the  derivation  of  the 
term  implies,  is  the  assumption  by  the  government  of  a  quasi- fatherly 
relation  to  the  citizen  and  his  family,  involving  excessive  govern- 

" Adair  v.  United  States.  208  U.S.  161. 
■''State  V.  Switsler,  143  Mo.  287  (1897). 


PROBLEM  OF  SOCIAL  CONTROL  125 

mental  regulation  of  the  private  affairs  and  business  methods  and 
interests  of  the  people,  upon  the  theory  that  the  people  are  in- 
capable of  managing  their  own  aflFairs,  and  is  pernicious  in  its  ten- 
dencies. In  a  word,  it  minimizes  the  citizen  and  maximizes  the  state. 
Our  governments  are  founded  upon  a  principle  wholly  antagonistic 
to  this.  Our  fathers  believed  the  people  capable  of  self-government. 
Such  a  government  is  founded  upon  a  willingness  and  desire  of  the 
people  to  take  care  of  their  own  affairs  and  an  indisposition  to  look 
to  the  government  for  everything.  The  citizen  is  a  unit.  Under 
self-government  we  have  advanced  in  all  the  elements  of  a  greater 
people  more  rapidly  than  any  nation  that  has  ever  existed  upon  the 
earth,  and  there  is  greater  need  now  than  ever  before  in  our  history 
for  adhering  to  it. 

61.    Industrial  Freedom  and  Prosperity** 

BY  JAMES  J.  HILL 

Among  the  radical  and  permanent,  as  distinguished  from  the 
partial  and  temporary,  causes  of  bad  times,  one  stands  out  pre- 
eminent by  the  volume  of  its  effects  and  the  persistence  with  which  it 
has  raged  all  over  the  country,  namely,  the  legislative  crusade  against 
business.  I  speak  here  of  no  particular  act,  for  the  business  inter- 
ests of  the  country  as  a  whole  have  been  under  fire  for  more  than 
ten  years.  The  attack  has  steadily  increased  in  violence  and  de- 
creased in  discrimination.  The  ingenuity  of  restless  minds  has 
taxed  itself  to  invent  new  restrictions,  new  regulations,  new  ptmish- 
ments  for  guilty  and  innocent  alike. 

While  existing  laws  were  allowed  to  fall  into  more  or  less  disuse, 
new  laws  were  heaped  on  one  another.  Each  of  these  invaded  some 
new  territory,  laid  the  hand  of  authority  upon  some  new  occupation, 
drew  closer  the  circle  of  business  interference  to  bureaucracy.  In- 
novation scarcely  stopped  short  of  declaring  any  distinct  business 
success  prima  facie  evidence  of  crime.  The  country  is  feeling  the 
inevitable  effect. 

When  hostile  regulation  goes  to  this  extent,  without  promise  of 
limit  to  either  its  objects  or  its  orders,  business  comes  to  a  halt 
though  tariff  rates  are  raised  to  the  skies.  It  cuts  down  present 
activity,  and  it  puts  a  veto  on  all  expansion.  The  present  may  be 
obscure,  but  the  future  looks  black.  For  here  industry  begins  to 
feel  the  indispensable  effects  of  capital  withdrawn,  and  to  realize  the 
effects  that  follow  its  withdrawal. 

'"Adapted  from  an  address  delivered  before  the  Rochester  Chamber  of 
Commerce,   December  5,  1914. 


126  CURRENT  ECONOMIC  PROBLEMS 

Nowadays  it  is  the  fashion  to  overlook  the  claim  of  capital  in 
production.  The  mistake  is  costly.  For  new  plants  will  not  be  built, 
raw  material  will  not  be  bought,  wages  cannot  be  paid  unless  capital 
is  ready  in  sufficient  quantities.  It  will  be  ready  only  on  condition 
that  it  expects  to  earn  at  least  a  reasonable  profit.  There  is  no 
reason  why  it  should  take  the  risks  present  in  even  the  most  con- 
servative employment  unless  there  is  a  possibility  of  commensurate 
profit.  That  possibility  must  have  a  promise  of  continuance  suffi- 
cient to  make  it  worth  while  to  go  into  the  enterprise  at  all. 

Now  it  is  exactly  these  indispensables,  a  fair  return  and  a  reason- 
able lease  of  life,  that  continuous  legislation  against  business  has  de- 
stroyed, or  has  threatened  to  destroy.  Politicians  have  acted  upon  the 
theory  that  it  is  good  to  burn  down  your  house  because  a  chimney 
smokes.    Fire  has  been  started  in  many  places. 

Our  progress  toward  a  centralized  paternalism  is  so  marked  and 
has  gone  so  far  that  the  Socialist  has  little  reason  to  complain  that 
his  party  has  not  secured  a  majority.  Every  year  sees  the  transac- 
tion of  business  made  more  expensive  by  laws  prescribing  multiplied 
and  costly  reports,  ordering  expensive  improvements  or  additional 
services,  laying  new  taxes,  compelling  the  hiring  of  additional  em- 
ployees. 

This  is  the  history  o*f  paternalism,  of  centralization,  since  the 
beginning.  Under  the  tribute  it  attempts  to  levy,  business  in  the 
United  States  will  eventually  become  unable  to  conform  to  the  oner- 
ous conditions  of  the  new  era.  It  would  be  some  compensation  if 
the  governing  system  were  efficient.  But  it  is  as  incompetent  as  it  is 
expensive.  This  is  not  the  fault  of  any  man  or  party;  it  inheres 
in  the  method  itself,  and  in  the  persistent  American  delusion  that 
democracy  can  afford  to  overlook,  in  its  selection  of  governing 
instruments,  the  question  of  fitness.  Nowhere  else  outside  the 
strictly  barbarous  countries  is  the  idea  that  public  place  should  pre- 
suppose some  direct  business  qualification  so  contemptuously 
rejected. 

Industries  which  represent  billions  of  capital,  capital  belonging 
largely  to  people  of  moderate  means,  are  under  the  order  of  officials 
chosen  for  political  reasons,  many  of  whom  could  not  earn  on  their 
merits  a  salary  large  enough  to  keep  them  alive  in  the  service  of  the 
concerns  which  are  now  at  their  mercy.  It  is  not  malevolence,  it  is 
not  corruption,  that  strikes  at  the  heart  of  business  so  dominated; 
it  is  the  ignorance  of  well-meaning  men  who  have  been  placed,  for 
political  considerations,  where  they  do  not  belong,  where  they  can 
do  no  good,  and  may  be  able  to  do  immense  harm. 


PROBLEM  OF  SOCIAL  CONTROL  127 

It  is  a  master-stroke  of  irony  that  while  business  all  over  the 
country  has  been  spending  time,  effort,  and  money  in  an  endeavor 
to  realize  efficiency,  the  governments  to  which  it  must  render  an 
account  and  whose  orders  it  must  obey  remain  the  most  striking 
examples  of  inefficiency  to  be  found  anywhere  in  the  world. 

The  main  outlines  of  the  business  situation  are  clear.  The 
country  may  enter,  after  the  close  of  the  European  war,  upon  a 
period  of  remarkable  prosperity.  So  it  will  be  given  the  task  of 
providing  for  a  time  for  a  maintenance  of  a  considerable  portion  of 
the  world's  industry.  The  great  and  continued  demand  should  be 
a  guaranty  of  a  corresponding  prosperity.  It  would  be  so  if  no  arti- 
ficial conditions  intervened.  But,  to  realize  this,  both  capital  and 
business  initiative  must  have  reasonable  freedom.  But  it  is  less  easy 
to  take  advantage  of  opportunities  than  ever  before.  At  every 
promising  opening  industry  sees  a  sign-board,  erected  by  public 
authority,  bearing  the  words  "No  thoroughfare."  If  the  next  five 
years  are  to  repeat  the  history  of  the  last  ten,  there  can  be  no  gen- 
eral improvement  and  no  general  prosperity  in  the  United  States. 

These  words  are  not  spoken  hopelessly.  The  American  people 
have  an  enormous  fund  of  underlying  common-sense.  It  is  funda- 
mentally conservative,  though  it  loves  to  follow  the  circus  parade 
once  in  a  while,  listen  to  the  music,  and  applaud  the  clown.  Since 
its  own  well-being  is  now  definitely  at  stake,  it  is  not  unreasonable 
to  hope  that  it  will  take  a  few  simple  steps  toward  the  realization 
of  its  hopes. 

The  first  and  indispensable  requirement  is  a  respite  from  attack 
for  the  business  interests  of  the  country.  So  great  are  its  recupera- 
tive powers  that  probably  one  or  two  years  of  freedom  from  fore- 
boding as  well  as  from  assault  would  accomplish  great  things  for 
industry. 

Subordinate  the  extension  of  the  sphere  of  governing  power  to 
an  improvement  of  its  quality.  It  is  time  for  all  to  remember  that 
no  man  has  a  right  to  hold  public  office,  from  the  top  to  the  bottom, 
unless  he  has  knowledge  of  that  line  of  work. 

Rest  from  agitation,  intelligent  economy,  efficiency,  harmonious 
co-operation  for  business  institutions  as  well  as  for  political  divi- 
sions— these  are  not  abtruse  ideas.  They  are  things  as  long  familiar 
and  as  little  reverenced  by  the  mass  of  men  as  the  contents  of  the 
Decalogue.  We  must  go  back  to  them  or  suffer  the  penalty  paid  by 
every  creative  thing  that  defies  the  law  of  the  physical  or  that  of 
the  moral  order  of  the  world. 


128  CURRENT  ECONOMIC  PROBLEMS 

62.     Public  Enemies^^ 

BY  WALT  MASON 

If  you  build  a  line  of  railway  over  hills  and  barren  lands, 

Giving  lucrative  employment  to  about  a  million  hands ; 

If  you  cause  a  score  of  cities  by  your  right-of-way  to  rise, 

Where  there  formerly  was  nothing  but  some  rattlesnakes  and  flies ; 

If  when  bringing  kale  to  others  you  acquire  a  little  kale. 

Then  you've  surely  robbed  the  peepul  and  you  ought  to  be  in  jail. 

If  by  planning  and  by  toiling  you  have  won  some  wealth  and  fame, 

It  will  make  no  odds  how  squarely  you  have  played  your  little  game ; 

Your  success  is  proof  sufficient  that  you  are  a  public  foe — 

You're  a  soulless  malefactor ;  to  the  dump  you  ought  to  go. 

It's  a  crime  for  you  to  prosper  when  so  many  others  fail ; 

You  have  surely  robbed  the  peepul  and  you  ought  to  be  in  jail. 

Be  a  chronic  politician,  deal  in  superheated  air ; 

Roast  the  banks  and  money  barons,  there  is  always  safety  there ; 

But  to  sound  the  note  of  business  is  a  crime  so  mean  and  base. 

That  a  fellow  guilty  of  it  ought  to  go  and  hide  his  face. 

Change  the  builder's  song  triumphant  for  the  politician's  wail. 

Or  we'll  think  you've  robbed  the  peepul  and  we'll  pack  you  off  to  jail. 

63.     The  Dominance  of  the  Entrepreneur  View-Point 

It  requires  no  great  familiarit}'  with  the  political  and  economic 
history  of  England  and  the  United  States  in  the  last  hundred  years 
to  reveal  the  dominance  of  industrial  interests  in  shaping  legisla- 
tion. The  men  who  have  ruled  the  commercial  world  and  created 
the  industrial  systems  of  these  two  countries  have  ostensibly  been 
advocates  of  the  policy  of  non-interference  with  industry.  But  in 
practice  they  have  drawn  the  line  only  at  legislation  which  adverse- 
ly afit'ects  business.  They  have  never  lost  an  opportunity  to  make 
a  most  active 'Use  of  the  machinery  of  government  in  furthering 
their  own  interests.  A  casual  study  of  the  legislation  passed  in  this 
country  during  the  decade  ending  in  1907  will  show  how  potent  has 
been  the  influence  of  this  class.  In  general  the  legislation  is  in 
keeping  with  the  interests  of  the  producing  classes ;  in  particular  it 
seems  to  have  been  shaped  largely  from  the  entrepreneur  view-point. 
So  dominant  has  the  latter  been  as  almost  to  preclude  a  considera- 
tion of  legislation  tending  to  general  social  betterment.  Perhaps  un- 
consciously, rather  than  consciously,  has  a  view-point  which  con- 

*^Reprinted  in  the  Commercial  and  Financial  Chronicle,  C,  I77.  from  the 
Journal  of  Electricity,  Power,  and  Gas   (1914), 


PROBLEM  OF  SOCIAL  CONTROL  129 

siders  primarily  the  interests  of  only  a  small  part  of  the  people  writ- 
ten itself  into  our  political  activity.  But,  even  then,  in  a  democracy, 
such  as  the  United  States,  how  has  the  view-point  of  a  class  become 
so  powerful  as  to  shape  general  legislation? 

The  answer  to  the  question  must  find  a  beginning  in  the  technical 
changes  which  characterized  the  Industrial  Revolution.  The  most 
significant  of  these  was  the  replacement  of  the  tool  by  the  machine. 
A  tool  is  a  simple  instrument,  costing  very  little,  useful  for  a  number 
of  different  tasks,  and  depending  for  its  success  upon  the  skill  of 
the  laborer  using  it.  A  machine,  on  the  contrary,  is  a  complex  of 
many  parts,  costing  much  in  labor  and  accumulated  wealth,  useful 
for  a  highly  specialized  task,  and  depending  for  its  success  upon  the 
nicety  of  its  own  mechanism.  Where  tools  were  universally  used, 
the  time  of  the  productive  process  was  short,  productive  establish- 
ments were  many,  and  the  laborer  was  quite  independent.  The  cost 
of  the  machine,  and  the  very  small  contribution  which  a  single  unit 
of  product  can  contribute  to  it,  prevent  the  machine  from  being 
used  except  in  the  production  of  a  large  number  of  units.  But  the 
specialization  of  the  machine  requires  the  use  of  a  large  number  of 
machines  in  the  production  of  a  single  article.  Under  machine  pro- 
duction the  economical  industry  is  likely  to  be  the  one  which  differ- 
entiates the  productive  process  into  the  largest  number  of  separate 
acts  for  each  of  which  a  machine  is  used.  The  modem  industrial 
unit  is  likely  to  be  large,  making  use  of  much  capital,  and  employing 
many  laborers.  Because  of  the  peculiar  adaptability  of  the  machine 
to  their  needs,  manufacturing,  mining,  transportation  and  industrial 
establishments  have  increased  to  great  size,  and  have  come  to  occupy 
positions  of  the  highest  importance. 

This  vantage  position  becomes  of  all  the  more  importance  when 
we  realize  the  purpose  for  which  the  business  is  being  conducted  and 
its  relations  to  other  industrial  units.  In  form  it  is  a  corporation. 
There  exists  no  necessary  personal  relation  between  the  manage- 
ment of  the  corporation  and  the  stockholders.  This  means  that  the 
investors  are  demanding  dividends ;  that  the  management  must  pro- 
duce dividends.  It  is,  therefore,  natural  that  the  relationship  be- 
tween the  corporation's  activities  a^d  social  good  is  not  kept  in  mind 
by  those  interested  in  the  corporation's  success.  In  the  complex  ar- 
rangement of  modem  business  a  social  means  has  become  an  indi- 
vidual end. 

Relative  to  other  businesses  it  occupies  a  strategic  position.  The 
productive  process  is  a  long  one  with  many  steps  between  the  pro- 
duction of  raw  materials  and  the  sale  of  the  finished  product.  Only 
a  few  operations  are  performed  by  industrial  concerns  which  make 


I30  CURRENT  ECONOMIC  PROBLEMS 

an  extensive  use  of  machinery.     But  the  smaller  concerns  must  se- 
cure regular  dividends,  and  are,  therefore,  dependent  upon  the  favor 
of  the  large  concern.    Unconsciously  they  come  to  share  the  attitude 
of  the  men  directing  larger  businesses.    The  complexity  of  modern 
industry  has  also  resulted  in  creating  a  number  of  subsidiary  agents 
who  perform  general'  services  which  are  necessities  of  the  produc- 
tive process.    Chief  among  these  are  the  agencies  of  credit  and  in- 
vestment, banks,  stock  and  produce  exchanges,  insurance  companies, 
loan  and  mortgage  associations.     Since  generally  these  institutions 
make  their  large  profits  from  the  operations  of  the  entrepreneur 
class,  and  in  many  cases  are  creatures  of  mining,  manufacturing, 
and  transportation  interests,  those  who  control  them  naturally  think 
in  terms  of  entrepreneur  interests.     Among  other  subsidiary  inter- 
ests are  those  of  the  legal,  advertising,  and  newspaper  professions. 
Constant  association  with  the  entrepreneur  class,  identity  of  pecuni- 
ary interests,  and  an  unconscious  imbibing  of  managerial  habits  of 
thought  make  the  views  of  the  legal  class  closely  akin  to  those  of  the 
industrial  magnates.   The  growth  of  business  has  caused  the  news- 
paper to  undergo  a  peculiar  development.   In  its  early  history  it  was 
primarily  a  news-sheet,  and  was  dependent  for  its  success  upon  the 
faithfulness  of  its  representation  of  the  interests  of  the  subscribers. 
Advertising  was  an  incidental  feature.     Now  the  element  of  im- 
personality is  distinctly  marked  in  the  news-vending  business.    The 
newspaper  is  owned  by  a  corporation,  the  stockholders  demand  that 
dividends  be  forthcoming,  and  the  management  has  no  alternative. 
For  that  reason  the  advertisement  as  a  source  of  revenue  has  ap- 
pealed more  and  more  to  the  business  office.    Now  it  is  safe  to  say 
that  a  large  subscription  list  is  incidental  to  charging  high  rates  for 
advertising.    So  it  has  come  about  that,  consciously  or  unconsciously, 
the  business  office  exercises  considerable  influence  over  the  editorial 
and  news  policy  of  the  paper.    This  has  resulted  in  making  a  large 
part  of  the  press  a  ready  vehicle  for  the  dissemination  of  informa- 
tion and  opinions  favorable  to  "big  business." 

The  position  in  which  the  laborer  is  placed  forces  him  to  think 
largely  in  acquisitive  terms.  He  sees  in  organization  and  in  political 
activity  a  means  for  individual  betterment.  But  wages  for  his  labor 
he  must  receive  regularly.  In  many  cases  the  time-period  in  terms 
of  which  his  thought  processes  run  is  no  longer  than  a  month,  in 
many  cases  it  extends  only  till  Saturday  night.  So  far  as  his  own 
labor  is  concerned,  especially  if  he  is  skilled,  the  laborer  is  relatively 
immobile.  It  is  too  much  to  expect  him  to  vote  in  favor  of  a  radical 
change  in  the  industrial  organization.    His  immediate  interests  are 


PROBLEM  OF  SOCIAL  CONXROL  131 

so  inseparably  bound  up  with  those  of  his  employer  that  to  a  large 
extent  the  latter's  political  views  are  his. 

Through  a  very  elaborate  differentiation  of  functions  and  an 
equally  elaborate  integration  of  parts,  modem  industrialism  presents 
the  appearance  of  a  vast,  intricate,  and  extremely  delicate  machine. 
Its  financial  operations  are  carried  on  through  the  instrumentality 
of  credit.  So  long  as  confidence  holds  out,  the  system  moves  along 
smoothly.  But  so  soon  as  men  lose  confidence  a  train  of  activities  is 
set  in  motion  which  may  result  in  the  destruction,  at  least  tempor- 
arily, of  the  acquisitive  powers  of  many  classes.  The  very  delicacy 
of  this  mechanism  creates  a  fear  of  disturbing  the  present  arrange- 
ments. The  business  man  feels  that  his  interests  are  bound  up  with 
those  of  the  large  industrial  and  financial  concerns,  and  for  that 
reason  he  opposes  innovation.  The  necessity  for  winning  imme- 
diate profits  deters  him  from  favoring  radical  schemes. 

The  stratification  of  society  rests  ultimately  upon  a  pecuniary 
basis.  The  higher  classes  enjoy  a  prestige  that  causes  the  lower 
classes  to  imitate  them  in  dress,  in  code  of  morals,  in  habit  of 
thought,  in  political  opinion.  The  position  of  men  in  the  entrepre- 
neur class  is  very  high.  Their  opinions  upon  all  questions,  particu- 
larly political  questions,  in  which  they  have  a  peculiar  interest,  are 
likely  to  filter  down  through  the  various  social  strata  which  make 
up  the  state,  and  become  a  part  of  common-sense  political  philos- 
ophy. In  the  political  system  the  legislator  can  better  keep  himself 
in  office  by  favoring  the  local  interests  of  his  district  than  by  work- 
ing for  legislation  for  the  general  good.  To  the  continuance  of  his 
political  life  the  business  man  who  occupies  a  strategic  position  in- 
dustrially, and  who  can  make  a  substantial  campaign  contribution 
can  contribute  much. 

Other  social  currents,  more  subtle  and  harder  to  detect,  also 
contribute  to  the  dominance  of  the  entrepreneur  viewpoint.  Ma- 
chinery has  awed  the  human  mind  with  a  sense  of  its  power  and  its 
strength.  As  a  result  to  the  modem  mind  the  idea  of  size  is  almost 
identical  with  the  idea  of  importance.  To  the  superficial  mind  the 
large  industrial  establishment  which  employs  many  men  is  thought 
of  as  the  cause  of  its  laborers  being  employed.  It  appears  that  the 
factory  or  mill  is  an  institution  of  Providence  from  which  flows  the 
blessings  which  the  laborers'  families  realize  through  an  expendi- 
ture of  the  wages  paid  out  by  it.  We  know  that  the  coming  of  the 
machine  multiplied  individual  productive  powers,  increased  the  size 
of  economic  incomes,  and  raised  the  general   standard  of  living. 


132  CURRENT  ECONOMIC  PROBLEMS 

Without  going  to  the  trouble  of  making  nice  distinctions  one  instinc- 
tively associates  machine  industty  with  progress  and  regards  in- 
dustries in  which  machinery  is  extensively  used  as  really  important, 
and  looks  upon  those  in  which  it  is  not  so  extensively  used  as  old- 
fashioned,  and  of  little  social  value. 

Machinery,  too,  favors  the  concentration  of  population,  while 
non-mechanical  industries  favor  its  dispersion.  This  concentration 
brings  into  play  all  the  sentimental  forces  which  play  about  place, 
locality,  and  the  city  greatly  to  the  advantage  of  local  landowners. 
The  manufacturing  interests  which  make  the  city  possible  thus  come 
to  be  regarded  as  necessary  means  to  the  realization  of  civic  ends. 
The  importance  of  these  industries  has  in  public  thought  been  still 
further  increased  by  what  may  be  called  the  impersonality  of  cap- 
ital. The  investment  of  capital  tends  to  separate  itself  from  the 
personal  business  inclinations  of  its  owner.  To  the  extent  that 
industry  depends  upon  capital  for  success,  the  state  or  municipality 
can  not  secure  the  industry  simply  by  an  appeal  to  the  personal 
tastes  and  local  prejudices  of  the  owner.  Special  privileges  have  to 
be  offered.  Thus  the  competition  of  local  units  results  in  a  state  of 
public  opinion  favorable  to  the  interests  of  industries  carried  on  on 
a  large  scale. 

Of  course  other  forces  are  at  work  in  moulding  political  opinion. 
Many  other  attitudes  are  mixing  themselves  into  the  complex  nexus 
of  the  attitude  of  the  public  towards  industry.  Into  these  currents 
of  opinion  it  is  not  our  purpose  to  go.  It  may  be  that  they  will  be 
crushed  before  the  powerful  blow  of  entrepreneur  views.  Or  it 
may  be  that  they  will  blend  themselves  with  that  viewpoint,  modify 
it,  and  render  it  less  acquisitive  and  more  considerate  of  social  in- 
terests.   Only  time  can  tell. 

64.    The  Futility  of  Utopian  Legislation*^ 

BY  ELIHU  ROOT 

When  proposals  are  made  to  change  our  fundamental  institu- 
tions there  are  certain  general  conditions  that  should  be  observed. 

The  first  is  that  free  government  is  impossible  except  through 
prescribed  and  established  governmental  institutions,  which  work 
out  the  ends  of  government  through  many  separate  human  agents, 
each  doing  his  part  in  obedience  to  law.  Popular  will  cannot  exe- 
cute itself  directly  except  through  a  mob.    Popular  will  cannot  get 

**Adapted  from  Experiments  in  Government  and  the  Essentials  of  the 
Constitution,  11-22.     Copyright  by  the  Princeton  University  Press  (1913). 


PROBLEM  OF  SOCIAL  CONTROL  133 

itself  executed  through  an  irresponsible  executive,  for  that  is  autoc- 
racy. An  executive  limited  only  by  the  direct  expression  of  popu- 
lar will  cannot  be  held  to  responsibility  against  his  will,  because, 
having  possession  of  all  the  powers  of  government,  he  can  prevent 
any  true,  free,  and  general  expression  adverse  to  himself.  We 
should,  therefore,  reject  every  proposal  which  involves  the  idea 
that  the  people  can  rule  only  by  voting. 

A  second  is  that  in  estimating  the  value  of  any  system  of  govern- 
mental institutions  due  regard  must  be  had  to  the  true  functions 
of  government  and  to  the  limitations  imposed  by  nature  upon  what 
it  is  possible  for  the  government  to  accomplish.  We  all  know  that 
we  cannot  abolish  all  the  evils  in  the  world  by  statute,  nor  can  we 
prevent  the  inexorable  law  of  nature  which  decrees  that  suffering 
shall  follow  vice,  and  all  the  evil  passions  and  folly  of  mankind. 
Law  cannot  give  to  depravity  the  rewards  of  virtue,  to  indolence 
the  rewards  of  industry,  to  indifference  the  rewards  of  ambition,  or 
to  ignorance  the  rewards  of  learning.  The  utmost  that  government 
can  do  is  measurably  to  protect  men,  not  against  the  wrong  they  do 
themselves,  but  against  the  wrong  done  by  others,  and  to  promote 
the  slow  process  of  educating  mind  and  character  to  a  better 
knowledge  and  nobler  standards  of  life  and  conduct. 

We  all  know  this,  but  when  we  see  how  much  misery  there  is  in 
the  world,  and  some  things  that  government  may  do  to  miti- 
gate it,  we  are  prone  to  forget  how  little,  after  all,  it  is  possible  for 
any  government  to  do.  The  chief  motive  power  that  has  moved  man- 
kind along  the  course  of  development  that  we  call  the  progress  of 
civilization  has  been  the  sum-total  of  intelligent  selfishness  in  a  vast 
number  of  individuals,  each  working  for  his  own  support,  his  own 
gain,  his  own  betterment.  It  is  that  which  has  cleared  the  forests 
and  cultivated  the  fields  and  built  the  ships  and  railroads,  made  the 
discoveries  and  inventions,  softened  by  intercourse  the  enmities  of 
nations,  and  made  possible  the  wonders  of  literature  and  art.  Grad- 
ually, during  the  long  process,  selfishness  has  grown  more  intelligent, 
with  a  broader  view  of  the  individual  benefit  from  the  common  good, 
and  gradually  the  influences  of  nobler  standards, of  altruism,  justice, 
and  sympathy  have  impressed  themselves  upon  the  conception  of 
right  conduct.  But  the  complete  control  of  such  motives  will  be 
the  millennium.  Any  attempt  to  enforce  a  millennial  standard  now 
by  law  must  necessarily  fail.  Indeed  no  such  standard  can  ever  be 
forced.  It  must  come,  not  by  superior  force,  but  from  the  changed 
nature  of  man. 

A  third  is  that  it  is  not  merely  useless  but  injurious  for  govern- 
ment to  attempt  too  much.    It  is  manifest  that  to  enable  it  to  deal 


134  CURRENT  ECONOMIC  PROBLEMS 

with  the  new  conditions  we  must  invest  government  with  the  author- 
ity to  interfere  with  the  individual  conduct  of  a  citizen  to  a  degree 
hitherto  unknown  in  this  country.  While  the  new  conditions  of  in- 
dustrial life  make  it  plainly  necessary  that  many  such  steps  shall  be 
taken,  they  should  be  taken  only  so  far  as  they  are  necessary  and 
effective.  Interference  with  individual  liberty  by  government  should 
be  jealously  watched  and  restrained,  because  the  habit  of  undue  in- 
terference destroys  that  independence  of  character  without  which, 
in  its  citizens,  no  free  government  can  endure.  Just  so  far  as  a 
nation  allows  its  institutions  to  be  molded  by  its  weakness  of  char- 
acter rather  than  by  its  strength,  it  creates  an  influence  to  increase 
weakness  at  the  expense  of  its  strength.  Undue  interference  by 
government  is  at  the  expense  of  individual  initiative,  energy,  enter- 
prise, courage,  independent  manhood. 

A  fourth  is  that  in  the  nature  of  things  all  government  must  be 
imperfect  because  men  are  imperfect.  Every  system  has  its  short- 
comings and  inconveniences;  and  these  are  seen  and  felt  as  they 
exist  in  the  system  under  which  we  live,  while  the  shortcomings  and 
inconveniences  of  other  systems  are  forgotten  or  ignored.  It  is  not 
unusual  to  see  governmental  methods  reformed  and,  after  a  time 
long  enough  to  forget  the  evils  that  caused  the  change,  to  have  a  new 
movement  for  reform  which  consists  in  changing  back  to  substan- 
tially the  same  old  methods  that  were  cast  out  by  the  first  reform. 
The  recognition  of  shortcomings  is  not  in  itself  sufficient  to  warrant 
a  change  of  system.  There  should  be  an  effort  to  estimate  and  com- 
pare the  shortcomings  of  the  system  to  be  substituted,  for  although 
they  may  be  different  they  will  certainly  exist. 

A  fifth  is  that,  whatever  changes  in  government  are  to  be  made, 
we  should  follow  the  method  which  undertakes  as  one  of  its  car- 
dinal points  to  hold  fast  that  which -is  good.  When  we  take  account 
of  all  that  governments  have  sought  to  do  and  have  failed  to  do  in 
this  world,  we  find  as  a  rule  that  the  application  of  new  theories, 
though  devised  -by  the  most  brilliant  constructive  genius,  have 
availed  but  little  to  preserve  the  people  for  any  long  periods  from 
the  evils  of  despotism  on  one  hand  or  of  anarchy  on  the  other,  or  to 
raise  any  considerable  portion  of  the  mass  of  mankind  above  the 
hard  conditions  of  oppression  and  misery.  And  we  find  that  our 
system  of  government,  built  up  in  a  practical  way  through  many 
centuries,  has  done  more  to  preserve  liberty,  justice,  security,  and 
freedom  of  opportunity,  for  many  people  for  a  long  period,  than 
any  other  system  of  government  ever  devised.  Human  nature  does 
not  change  very  much.  The  forces  of  evil  are  hard  to  control,  as 
they  have  always  been.  It  is  easy  to  fail  and  hard  to  succeed  in 
reconciling  liberty  and  order. 


PROBLEM  OF  SOCIAL  CONTROL  135 

H.     THE  BASIS  OF  NATIONAL  EFFICIENCY 
65.     Individualism  and  American  Efficiency^" 

BY  ARTHUR    SHADWELL 

The  United  States  is  new,  partly  developed,  and  untrammeled 
by  traditions.  It  is  not  a  homogeneous  country,  but  a  medley  of 
peoples,  nations,  languages,  creeds,  and  climates,  having  in  daily 
life  little  in  common  but  the  mail,  the  currency,  and  the  tariff.  The 
British  Empire  itself  hardly  comprises  a  more  heterogeneous  racial 
assortment ;  it  has  the  white  man,  the  black,  the  red,  the  yellow,  and 
the  hybrid ;  the  yellow  includes  most  kinds  of  Asiatic  and  the  white, 
every  kind  of  European.  Soil  and  climate  are  no  less  varied  than  the 
population;  and  though  laws  and  social  conditions  exhibit  more 
homogeneity,  they  yet  exhibit  large  and  numerous  discrepancies. 
Still  the  United  States  is  a  nation,  and  the  people  possess  some  dis- 
tinctive national  qualities,  well  worth  considering. 

In  general  they  are  alert,  inventive,  ingenious,  and  adventurous 
beyond  all  other  people,  but  hurried,  careless,  and  unthorough.  The 
merits  of  this  temperament  are  more  immediately  obvious  than  its 
defects.  The  roar  and  bustle  of  industrial  life  in  America,  the  ex- 
citement, the  abundance  of  novelty,  the  enormous  scale  of  operations, 
the  boundless  adventure,  the  playing  with  millions — all  these  im- 
press the  mind  and  draw  attention  from  the  defects  which  they  foster 
and  conceal.  An  English  workman  who  had  lived  for  years  in  the 
heart  of  it,  where  the  smoke  is  thickest,  the  roar  of  machinery  loud- 
est, and  the  sound  of  millions  most  common,  summed  it  up  better 
than  anyone  I  have  met.  "This  is  an  adventurous  country,"  he  said ; 
"they  think  nothing  of  millions ;  but  it's  all  hurry-skurry  work.  Let 
her  go !    Give  her  hell !    That's  the  word." 

The  recklessness  is  magnificent,  and  I  suppose  that  at  present  it 
is  business ;  but  that  is  because  the  country  is  not  yet  filled  up.  There 
seem  to  be  boundless  possibilities  within  the  reach  of  every  man,  and 
being  generally  intelligent,  alert,  and  ambitious,  they  hurry  to  realize 
them.  If  a  man  fails  today  in  one  direction,  no  matter;  he  can  try 
again  tomorrow  in  another. 

The  Yankee  of  old,  as  presented  in  literature,  was  an  astute  but 
deliberate  person,  saying  very  incisive  things  in  a  slow,  drawling  way, 
quick  of  mind,  but  slow  of  movement,  not  to  be  hurried,  and  much 
given  to  "whittling,"  which  is  not  a  very  feverish  and  purposeful  oc- 
cupation.   Does  anyone  whittle  now?    The  present  spirit  arose  with 

■•Adapted  from  Industrial  Efficiency,  I,  1-47  (1906). 


136  CURRENT  ECONOMIC  PROBLEMS 

the  development  of  the  railway  system,  which  opened  up  the  coun- 
try, poured  in  the  population,  brought  the  natural  wealth  to  the 
market,  and  produced  the  millionaire.  Since  then  industrial  activity 
has  gone  with  a  rush.  There  was  money  to  start  industries  and 
money  to  be  made  out  of  them.  There  were  power  and  raw  ma- 
terials in  the  ground;  there  was  labor,  skilled  or  unskilled,  coming 
along  all  the  time.  And  there  was  nothing  to  hinder;  no  enemies 
to  watch,  no  army  to  keep  up,  perfect  security  and  tranquillity.  A 
great  industrial  expansion  was  inevitable;  it  could  not  help  coming 
and  bringing  with  it  boundless  possibilities  of  wealth.  The  million- 
aire multiplied,  swelled  to  double,  treble,  tenfold  his  former  bulk, 
and  set  such  a  glorious,  shining,  dazzling  example  that  no  man  could 
behold  it  unmoved.  Now  in  the  United  States  there  is  "equality  of 
opportunity,"  and  all  men  with  millionairedom  in  their  souls — a 
numerous  body — felt  that  even  if  they  could  not  reach  that  height 
they  might  get  near  to  it.  So  the  scramble  for  money  became  the 
occupation  of  a  large  part  of  the  people.  Hence  the  commercial 
hurry-scurry. 

Trouble-saving,  rather  than  time-saving,  is  characteristic  of  the 
Americans.  It  is  the  former,  not  the  latter,  that  has  an  intimate  re- 
lation to  the  distinctive  qualities  of  their  industrial  success.  The  line 
in  which  they  are  supreme  is  the  invention  of  labor-saving  machinery. 
They  possess  an  inexhaustible  fertility  in  devising  ingenious  con- 
trivances for  replacing  toil.  One  explanation  of  this  is  the  necessity 
of  minimizing  labor  because  of  its  high  cost.  No  doubt  that  is  a 
great  stimulus,  but  there  is  more  than  that.  There  is  a  positive  dis- 
like of  processes  involving  physical  exertion.  Perhaps  it  is  charge- 
able to  mental  activity  and  eventually  traceable  to  climate.  At  any 
rate  it  exhibits  the  paradoxical  combination  of  love  of  hurry  and 
dislike  of  bodily  exertion. 

These  qualities  have  a  weak  side.  They  are  fatal  to  thorough- 
ness and  finish  unless  these  can  be  attained  by  mechanical  means, 
which  is  very  rarely  the  case.  For  first-class  work  some  plodding 
is  required.  It  is  surely  remarkable  that  so  little  first-class  work 
of  any  kind  is  produced  in  the  United  States,  with  all  its  wealth, 
population,  intelligence,  and  educational  keenness.  All  the  recent 
discoveries  of  importance,  from  .bacteria  to  radium,  have  come  from 
Europe. .  The  number  who  go  into  the  professions  is  large,  and  they 
produce  a  great  deal  of  a  certain  quality,  but  nothing  really  first 
class.  They  never  carry  anything  to  its  legitimate  development,  to 
the  point  of  being  a  masterpiece.  What  is  wrong  is  an  attitude  of 
mind  that  has  never  gotten  beyond  adolescence. 

There  is  danger  that  slovenliness  may  become  a  national  habit. 
"Slovenliness  is  something  more  than  a  violation  of  good  taste;  it  is 


PROBLEM  OF  SOCIAL  CONTROL  137 

indifference  to  the  best  way  of  doing  things;  it  is  a  kind  of  easy- 
going morahty  in  matters  of  method."  "Let  it  go  at  that"  seems  to 
be  written  all  over  the  face  of  the  land.  You  see  it  in  the  slovenli- 
ness of  their  language ;  in  their  affectation  of  slovenliness  as  a  smart 
thing.  You  see  it  in  wretchedly  laid  railway  tracks,  in  swaying  tele- 
graph poles,  in  sliding  embankments,  in  broken-down  vehicles  with 
rickety  wheels  too  slight  for  their  work,  in  harness  tied  up  with  a 
string,  in  scamped  and  hurried  work  everywhere.  There  seems  to 
be  a  disdain  of  thorough  workmanship  and  detail  in  finish. 

The  same  national  feeling  is  conspicuous  in  the  factory  and  work- 
shop. You  may  see  machinery  racketing  itself  to  pieces  and  spoiling 
the  material  in  the  attempt  to  run  faster  than  it  can;  you  see 
waste  of  fuel  and  steam,  machinery  clogged  and  spoiling  for  want 
of  care  and  cleanliness,  the  place  in  a  mess  and  the  stuff  turned  out 
in  a  rough,  badly  finished  state.  When  you  see  this  over  and  over 
again,  you  begin  to  understand  why  the  United  States,  with  all  its 
natural  advantages,  requires  a  prohibitive  duty  on  foreign  manu- 
factures which  it  ought  to  produce  better  itself. 

The  Americans  are  a  highly  emulative  people,  and  anxious  to 
beat  not  only  their  competitors  but  themselves.  "Beat  our  own  rec- 
ord" is  one  of  the  mottoes.  A  different  trait  is  embodied  in  another 
motto — "Don't  grumble,  boost."  One  method  of  boosting  in  Amer- 
ica deserves  particular  attention,  that  of  advertisement.  In  this 
Americans  lead  the  world  so  successfully  that  no  competitor  is  in  the 
running.  Its  development  is  assisted  by  the  very  curious  trait  of 
toleration  of  shams.  Like  the  toleration  of  unfinished  work  with 
which  it  is  connected,  the  toleration  of  shams  is  pervasive.  It  is 
illustrated  in  daily  life  by  the  pretense  of  a  single  class  in  railway 
traveling,  by  the  use  of  such  euphemisms  as  "help"  for  servant  and 
"charity"  for  pauperism.  Almost  an  affection  for  shams  is  shown  in 
the  encouragement  given  to  every  kind  of  imposture.  America  is 
the  land  above  all  others  where  everything  that  appeals  to  credulity 
and  ignorance  flourishes.  It  is  there  that  new  religions  arise.  It  is 
there  that  the  medical  quackeries,  the  patent  foods,  the  beautifiers, 
and  all  that  gallery  flourish  most.  I  attribute  this  vogue  to  the 
boundless  faith  of  Americans  in  their  own  country  as  the  pioneer  of 
civilization  and  enlightenment,  to  the  wide  diffusion  of  superficial 
education,  and  to  the  general  contempt  for  the  experience  of  man- 
kind at  large. 

They  have  no  reverence  for  what  is  old  and  proved  outside  their 
own  borders.  The  mass  of  people  believe  that  there  is  nothing  to 
learn  from  other  countries  and  that  all  things  are  possible  in  their 
own  land.  This  feeling  amounts  to  a  superstition.  In  Europe,  Ger- 
many, for  instance,  laws  are  made  to  be  kept,  and  to  that  end  they 


138  CURRENT  ECONOMIC  PROBLEMS 

are  very  carefully  made.  In  the  United  States  the  general  contempt 
for  law  is  astonishing.  I  am  inclined  to  think  that  it  is  the  most 
salient  feature  of  American  civilization.  Laws  thought  to  be  op- 
pressive are  not  obeyed;  they  are  evaded  or  defied.  And  I  know 
no  country  in  which  laws  that  interfere  with  liberty  of  the  indi- 
vidual are  so  common.  They  seem  to  be  intended,  not  for  the  protec- 
tion of  the  public  and  the  maintenance  of  order,  but  for  the  promo- 
tion of  morality.    Of  course,  they  cannot  possibly  be  enforced. 

The  position  of  woman  in  America  is  peculiar,  resting  upon  the 
accidental  fact  that  there  she  is  in  a  minority.  The  law  of  supply 
and  demand  gives  her  an  effective  advantage  which  the  theory  of 
equality  enables  her  to  utilize.  In  Europe,  women  are  subordinated ; 
in  America,  they  are  dominant.  In  the  former  they  take  orders ;  in 
the  latter  they  give  them.  In  the  former  the  man  is  the  boss ;  in  the 
latter,  the  woman.  The  ideal  wife,  I  suppose,  is  at  once  a  helpmeet 
and  a  stimulus.  In  Europe  the  former  predominates;  in  America, 
the  latter.  Each  exercises  a  powerful  influence  on  national  life.  In 
the  former  one  of  the  largest  elements  of  national  strength  is  the 
domestic  character  of  the  women.  In  the  latter  the  feminine  stimu- 
lus is  a  great  incentive  to  that  strenuous  application  and  restless  en- 
terprise which  stand  out  so  strongly.  Both  characters  have  their 
weak  points ;  the  helpmeet  is  likely  to  be  blunted  to  a  drudge,  the 
stimulus  to  be  sharpened  to  a  goad.  Of  the  two  the  latter  is  the 
greater  evil.  The  spoiling  of  women,  though  it  makes  the  men  work, 
is  not  good  for  the  women;  it  fosters  an  exacting  disposition, 
extravagance,  love  of  amusement,  and  a  distaste  for  domestic  duties 
which  threatens  national  vitality.  And  it  reacts  on  the  men,  who 
console  themselves  elsewhere  for  exactions  submitted  to  at  home. 

But,  as  for  America,  there  is,  after  all,  a  spirit  in  the  air  which  is 
not  all  due  to  climate — the  spirit  of  endeavor,  of  expansion,  of  be- 
lief in  a  great  destiny  in  which  every  individual  shares.  It  is  an  in- 
spiring atmosphere. 


so 


66.     German  Socialized  Efficiency 

BY  SAMUEI*  p.  ORTH 

Is  Germany  a  model  for  our  democracy?  What  price  is  she 
paying  for  her  well  advertised  efficiency?  How  is  her  paternalism 
affecting  human  nature? 

The  lure  is  a  socialized  Germany.  The  State  owns  railroads, 
canals,   river   transportation,   harbors,   telegraphs,   and   telephones. 

"Adapted  from  an  article  in  The  World's  Work,  XXVI,  31S-321.  Copy- 
right (1912). 


PROBLEM  OF  SOCIAL  CONTROL  139 

Banks,  insurance,  pawnshops,  are  conducted  by  the  State.  Munici- 
palities are  landlords  of  vast  estates;  they  are  capitalists  owning 
street  car  lines,  gas  plants,  electric  light  plants,  theatres,  markets, 
warehouses.  The  cities  conduct  hospitals  for  the  sick,  shelters  for 
the  homeless,  soup-houses  for  the  hungry,  asylums  for  the  weak  and 
unfortunate,  nurseries  for  the  babies,  homes  for  the  aged,  and  cem- 
eteries for  the  dead. 

Add  to  this  the  vast  and  complex  system  of  State  education,  a 
system  of  training  that  aims  at  livelihood.  Nothing  like  the  per- 
fection, the  drill,  and  the  earnest,  unsmiling  efficiency  of  these  ele- 
mentary and  trade  schools  exists  anywhere  else  in  the  world.  In 
1907,  there  were  9,ooo,cxx)  children  in  the  elementary  schools,  taught 
by  150,000  teachers,  nearly  all  masters,  as  the  "school  ma'am"  does 
not  flourish  in  the  Kaiser's  realm.  Every  one  of  these  pupils  is 
headed  for  a  bread-and-butter  niche  in  this  land  of  super-orderli- 
ness. And  more  than  300,000  persons  are  employed  by  the  State 
in  some  form  of  educational  work,  training  the  youth  into  adept- 
ness,  in  all  sorts  of  schools. 

The  army,  as  well  as  the  school,  brings  home  to  every  German 
family  the  fact  that  the  State  is  watchful — ^and  jealous.  It  demands 
that  two  full  years  of  every  young  man  be  "socialized";  and  the 
peasant  woman  and  the  artisan's  wife  must  contribute  her  toil  to 
the  toll  that  the  vast  system  of  State  discipline  demands. 

Even  the  Church,  that  form  of  organized  social  effort  which  is 
everywhere  first  to  break  away  from  the  regimen  of  the  State,  re- 
mains "established."  So  I  might  continue  through  almost  every 
activity — the  vast  system  of  State  railroads,  mines,  shipyards — and 
include  even  art  and  music. 

This  socialized  Germany  is  also  an  industrialized  Germany. 
Everyone  knows  how  cleverly  advertised  are  German  goods.  But  it 
is  always  well  to  remember  that  this  race  of  traders  and  manufac- 
turers has  somehow,  in  one  generation,  come  from  a  race  of  solid 
scholars,  patient  artisans,  and  frugal  peasants.  The  old  Germany 
has  disappeared ;  the  Germany  of  the .  spectacles,  the  shabby  coat, 
and  the  book;  the  Germany  of  Heidelberg  and  Weimar.  A  new 
order  has  taken  its  place.  As  you  ride  in  the  great  express,  from 
Cologne  to  Berlin,  you  never  are  out  of  sight  of  clusters  of  tall, 
smoking  chimneys.  Symbolic  of  the  new  Germany  are  the  Deutsche 
Bank,  the  trade  of  Hamburg,  and  the  steel  works  of  Essen. 

Now,  how  has  it  been  possible  to  make  this  transformation  ?  To 
create  out  of  a  slow,  plodding,  peasant-artisan  people  an  industrial- 
ized population,  out  of  a  race  of  scholars  a  race  of  manufacturers ; 


I40  CURRENT  ECONOMIC  PROBLEMS 

to  fill  a  land  no  larger  than  one  half  of  Texas  with  65,000,000  peo- 
ple who  are  breeding  at  the  rate  of  nearly  a  million  a  year,  and  to 
engage  the  State  in  doing  all  sorts  of  things  for  these  thriving  fam- 
ilies? It  is  the  political  miracle  of  the  century,  and  its  socialized 
efficiency  is  the  talk  of  the  hour.    How  has  it  been  accomplished? 

The  Kaiser  has  adapted,  line  for  line  and  point  for  point,  the 
pattern  of  medieval  feudalism  to  the  exigencies  of  modern  indus- 
trialism. So,  to  begin  with,  the  Kaiser  has  an  obedient  people,  in 
whom  the  feudal  notion  of  caste  is  second  nature.  Every  one  has 
his  place,  and  shall  keep  it.  Such  shifting  as  now  is  tolerated  is 
due  to  wealth  and  to  the  kind  of  ambition  which  luxury  always 
awakens. 

You  cannot  have  superimposed  classes  without  obedience.  The 
average  German  is  docile,  and  wants  to  be  told  what  to  do. 

The  Government  has  its  eager  hands  in  every  pocket,  its  anxious 
fingers  on  every  pulse.  From  the  cradle  to  the  grave,  the  State 
watches  the  individual,  commands  him  and,  in  a  way,  cares  for  him ; 
always  seeing  to  it  that  he  has  a  place  in  the  national  economy  and 
that  he  keeps  it. 

To  an  outsider,  of  course,  the  inner  workings  of  the  mind  and 
heart  are  hidden.  But  the  outer  aspect  of  the  German  State  is  per- 
fectly patent.  It  is  mechanism — there  can  be  no  doubt  about  it — 
the  mechanism  of  the  solar  system.  It  is  a  land  where  every  mem- 
ber of  Society  has  an  ordained  orbit  and  moves  in  it  around  the 
central  sun,  the  State,  which  radiates  a  mystic  gravitation  into  every 
activity — almost  every  thought — of  every  man,  woman,  and  child. 

Here  you  see  the  most  varied  activities  held  to  the  ideals  of 
efficiency  through  a  perfected  feudalism.  So  that  all  Carl  and  John 
need  to  do  is  to  obey ;  then  they  are  taught  the  rudiments  of  learn- 
ing and  a  trade,  are  insured  against  the  most  disturbing  episodes 
of  life,  assured  also  of  some  leisure,  considerable  amusement,  and 
a  decent  burial.    And  that  is  life ! 

Of  all  invented  contrivances  this  German  machine  is  the  most 
amazing,  this  vast  enginery  of  State  with  the  patents  of  Hohenzol- 
lem,  Bismarck,  &  Co.  on  every  part,  that  has  reduced  the  life  of  a 
great  people  to  complacent  routine  and  merged  the  rough  eccentrici- 
ties of  all  into  a  uniformity  of  effort  and  ambition. 

It  is  true  that  John  and  Carl  can  live  their  ordered  lives  in  rou- 
tine and  contentment,  rounding  out  year  after  year  of  plodding  toil, 
paying  their  dues  to  the  various  funds  and  their  taxes  to  the  Gov- 
ernment, rearing  their  families,  and  entrusting  them  to  the  same 
over-care.  But  what  sort  of  creatures  does  it  make  of  John  and 
Carl,  and  of  their  children  and  their  childrens'  children? 


PROBLEM  OF  SOCIAL  CONTROL  141 

There  is  no  exact  way,  not  even  a  German  way,  of  measuring 
originality,  individual  initiative,  and  independence.  But  this  also 
is  certain :  patience,  obedience,  minute  training,  do  not  foster  dar- 
ing and  versatility.  John  and  Carl  settle  down,  literally  settle  down, 
to  an  uneventful  life,  looking  forward  to  no  change,  taking  no  risks, 
sedcing  no  alternatives.  Once  a  butcher,  always  a  butcher.  This 
makes  Germany  depressing  to  a  restless  American  who  is  always 
willing  to  "go  it  alone"  and  to  get  "a  run  for  his  money." 

Some  years  ago,  Mr.  Ludwig  Max  Goldberger  gave  his  country- 
men the  cheering  news  that  Americans  need  not  be  feared,  because 
"all  that  they  have  done,  we  can  imitate."  This  is  an  actual  policy. 
I  have  been  told  by  American  manufacturers  that  they  have  found 
their  machines  so  exactly  copied  in  German  shops  that  only  the  ab- 
sence of  the  patent  dates  and  of  the  name  of  the  makers  told  them 
that  the  machines  were  not  made  in  the  American  shop.  Already 
this  land  of  drill  and  obedience  is  becoming  an  empire  of  conscious 
imitators. 

There  are  on  the  German  horizon  ominous  portents.  First  I 
should  place  the  moral  and  psychological  effects  of  luxury.  Few 
nations  can  stand  the  sapping  suction  of  plenty.  The  effect  of  the 
profligacy  that  is  everywhere  apparent  in  the  New  Germany  will  be 
particularly  swift  and  fatal  in  a  people  who  for  generations  have 
been  frugal  and  plain.  * 

On  top  of  this  wealth  is  an  imperial  debt  that  has  risen  from 
$490,000,000  in  1901  to  $1,345,000,000  in  1912 ;  this  without  reckon- 
ing the  provincial  and  municipal  debt  which  is  four  times  larger 
than  the  imperial.  The  burden  of  taxation  in  1912  was  $70  per 
average  family. 

And  on  top  of  this  burden  of  debts  sits  the  militarist,  191 1- 12, 
taking  622,520  young  men  out  of  the  fields  and  factories  for  the 
standing  army.  This  year  130,000  more  are  to  be  called  out;  and  a 
new  and  unheard-of  war  program  is  proposed  to  this  patient  and 
obedient  people.  One  must  admire  alike  the  audacity  of  the  pro- 
posal, the  patriotism  of  the  voter,  and  the  magnificent  discipline  that 
has  wrought  such  submissiveness. 

The  red  omen  is  the  most  conspicuous.  Socialism  is  skillfully 
combining  the  revolt  against  this  imperial,  personal  Government, 
and  the  desire  of  the  workman  for  a  greater  share  of  the  wealth  of 
the  land. 

If  a  revolt  succeeds,  what  will  happen  to  this  centralized  bureau- 
cracy? What  will  become  of  the  system  of  state  aid  and  municipal 
socialism  ?    For  without  an  efficient  bureaucracy  you  cannot  have  an 


142  CURRENT  ECONOMIC  PROBLEMS 

effective  paternalism;  and  without  centralized  administration  you 
cannot  run  railroads,  theatres,  and  pawnshops. 

It  is  the  one  point  usually  overlooked  by  the  enthusiasts.  They 
paint  glowing  pictures  of  socialized  Germany,  but  they  fail  to  look 
under  the  surface.  Germany's  system  is  built  upon  discipline ;  hard, 
military,  iron  discipline,  that  grips  every  baby  in  its  vise  and  forces 
every  man  into  his  place;  a  benevolent  tyranny,  no  doubt,  but  nev- 
ertheless a  tyranny ;  an  efficient  feudalism,  but  none  the  less  a  feud- 
alism of  self-conscious  caste  and  fixed  tradition. 

No  doubt  the  time  has  come  when  we  must  modify  our  system 
of  extreme  individualism  by  some  system  of  social  cooperation. 
How  far  shall  we  proceed  in  this  path  of  socialized  efficiency?  Are 
we  willing  to  pay  the  German  price?  Could  we  do  it  even  if  we 
wished  to?  Only  a  few  peoples  are  fitted  for  such  rigor,  I  believe 
that  America  would  be  a  poor  place  for  a  HohenzoUern  efficiency 
test.  The  carefully  trained  American  barber  would  quite  suddenly 
take  it  into  his  head  to  be  a  sailor  or  a  constable,  and  "all  the  king's 
horses  and  all  the  king's  men"  couldn't  hold  him  to  his  economic 
predestination. 

When  all  has  been  said,  I  cannot  escape  the  conviction  that  the 
real  significance  even  of  Germany  is  not  in  what  the  State  has  done 
for  the  workman  but  what  the  German  workman  has  succeeded  in 
doing  for  himself,  in  spite  of  the  State. 

•This  brings  us  back  to  the  first  postulate  of  Anglo-Saxon  indi- 
vidualism: the  basis  of  social  cooperation  is  self-help. 


IV 

THE   PECUNIARY  BASIS   OF   ECONOMIC 
ORGANIZATION 

"The  industrial  system  in  which  we  live  is  without  order,  plan,  and  sys- 
tem ;  its  name  is  Chaos,"  asserts  our  socialist  friend.  In  a  lecture  on  "The 
Relation  of  Political  Economy  to  Natural  Theology,"  an  English  divine  says 
in  substance,  "The  almost  perfect  way  in  which,  without  conscious  inter- 
vention, our  multifarious  industrial  activities  are  co-ordinated  into  a  system 
that  satisfies  our  needs  bears  evidence  of  the  mysterious  way  in  which  God 
moves  'his  wonders  to  perform.' "  These  antagonistic  opinions  raise  some 
of  the  most  pertinent  questions  connected  with  the  organization  of  society. 
Is  our  economic  world  one  of  order?  Can  industrial  organization  maintain 
itself  without  authoritative  interference?  Is  the  "automatic"  organization 
of  society  the  most  economical?  Can  it  be  supplemented,  controlled,  or 
superseded?  Does  it  serve,  or  can  it  be  made  to  serve,  the  requisite  ethical 
ends?  In  this  division  attention  is  given  only  to  the  more  immediate  aspects 
of  these  general  problems.  A  consideration  of  the  factors  of  a  develop- 
ing society  which  complicate  them  must  be  reserved  to  the  next  division. 

The  first  question  can  be  given  a  definite  affirmative  answer :  our  system 
is  possessed  of  order.  The  nicety  with  which  men  and  "jobs,"  coital  and 
opportunities  for  investment,  and  supply  of  and  demand  for  goods  are 
brought  together  attests  this.  An  examination  reveals  in  our  scheme  of 
prices  an  admirable  mechanism  for  preserving  this  organization.  Rising 
prices  attract  capital,  labor,  or  goods;  falling  prices  repel  them.  Back  of 
this  we  find  an  'active  organizing  agency  in  pecuniary  competition.  Further 
examination  shows  that  our  system  is  admirably  adapted  to  manipulation 
through  price  changes.  Labor,  capital,  and  goods  are  mobile ;  the  industrial 
technique  is  plastic;  and  our  scheme  of  values  has  translated  itself  very 
largely  into  pecuniary  terms.  We  have  also  devised  several  special  contriv- 
ances which  tend  to  eliminate  personal  factors  and  make  easier  the  exer- 
cise of  the  motivating  power  of  price.  Of  these  the  corporation  is  typical. 
It  reduces  economic  judgments  to  the  cold  calculus  of  dollars.  It  has  split 
up  business  opportunities  into  bits  small  enough  to  fit  the  pocket-book  of 
the  most  insignificant  investor;  it  has  distributed  the  risks  of  industry  in 
accordance  with  the  whims  of  different  classes  of  capitalists ;  and  it  has  served 
to  place  capital  under  the  control  of  the  pecuniarily  ablest  managements.  It 
has,  perchance,  more  than  once  freed  the  pecuniarily  unfit  from  the  burden 
of  his  possessions. 

The  second  question  can  definitely  be  answered  in  the  negative.  The 
system  cannot  maintain  itself  without  authoritative  interference.  The  state 
must  preserve  "law  and  order,"  maintain  the  integrity  of  basic  institutions, 
provide  an  efficient  monetary  system,  keep  free  the  channels  of  trade,  and  act 
as  arbiter  in  industrial  disputes.  The  various  trades  must  have  their  bodies 
of  developing  custom.  The  constraints  of  social  usage  must  give  at  least  a 
modicum  of  order  to  the  wants  of  consumers.  Yet  the  important  role  of 
authority  in  industrial  organization  is  often  lost  sight  of  and  competition 
itself  is  denounced  as  "ruthless."  This  judgment  springs  from  a  confusion 
of  competition  and  laissez-faire;  of  the  process  of  organization  and  the 
fundamental  institutions  which  condition  it.    The  "plane"  of  competition  can 

143 


144  CURRENT  ECONOMIC  PROBLEMS 

be  authoritatively  determined,  even  though  competition  be  left  "free."  Ac- 
cordingly the  ethical  character  of  the  result  depends,  not  on  the  fact  of  com- 
petition, but  on  "the  rules  of  the  game." 

The  third  question  cannot,  at  least  at  this  stage  of  our  study,  be  answered 
definitely.  More  than  one  industrial  activity  has  been  pronounced  uneconom- 
ical and  its  personnel  parasites.  It  requires  little  effort  to  think  of  many 
trades  or  vocations  which  for  a  time  have  enabled  their  devotees  to  reap 
without  sowing.  Such  methods  of  acquiring  "easy  money"  necessarily  in- 
volve "economic  waste,"  and  should  be  forbidden.  Frequently  "middlemen" 
and  "speculators"  are  consigned  to  this  class  of  unproductive  and  unprofitable 
servants.  Analysis  shows  that  both  perform  very  necessary  functions  in  the 
organization  of  the  market.  But  this  does  not  dispose  of  the  question  of 
economy  in  organization.  It  may  well  be  that  there  are  too  many  "middle- 
men"; that  there  is  a  waste  of  our  limited  social  resources  at  this  point. 
And  it  is  doubtless  true  that  speculation  frequently  degenerates  into  gambling. 
If  so,  two  problems  are  presented :  Can  the  waste  of  resources  in  mercan- 
tile pursuits  be  checked  without  interfering  with  efficiency  in  service?  Can 
speculation  be  stripped  of  gambling  without  interfering  with  the  performance 
of  its  organizing  functions?  Almost  as  often  the  economy  of  the  system  as 
a  whole  is  called  into  question.  Our  attention  is  directed  to  the  "wastes  of 
competition" ;  and  it  is  urged  that  these  wastes  can  be  eliminated  either  by 
a  policy  of  "regulated  monopoly"  or  by  "the  socialization  of  industry."  A 
consideration  of  these  delicate  problems  of  economic  organization  will  have 
to  be  postponed  until  later  in  our  study. 

The  fourth  question  involves  several  questions  which  cannot  be  answered 
in  a  single  statement.  The  evidence  seems  to  be  against  society's  being  able 
arbitrarily  to  fix  prices  that  are  greatly  at  variance  with  "natural"  prices. 
The  wholesale  prescription  of  a  scheme  of  prices  is  a  very  complex  ques- 
tion; it  practically  involves  a  socialization  of  industry;  economists  generally 
would  pronounce  against  it.  However,  it' seems  evident  that  prices  can  be  in- 
directly changed  by  means  of  controlling  demand  or  supply.  This  indirect 
attempt  to  interfere  with  prices  is  characteristic  of  monopoly,  of  trade- 
unionism,  and  of  such  proposals  as,  say,  a  minimum  wage,  coupled  with  a 
control  of  immigration.  It  will  reappear  in  connection  with  each  of  these 
problems.  Finally,  as  we  have  already  seen,  society  can  exercise  an  influence 
over  the  institutional  situation  within  which  price-fixing  occurs. 

The  fifth  question  we  must  pass  by.  We  cannot  pronounce  an  ethical 
judgment  upon  the  organization  of  the  present  system  until  we  have  had*a 
chance  to  study  both  the  problems  referred  to  in  this  section  and  many  others. 
It  may  perchance  be  that  even  then  we  will  hesitate  to  pronounce  a  judgment. 

A.     PRICE  AS  AN  ORGANIZING  FORCE 
67.    The  Social  Order^ 

BY  EDWIN  CANNAN 

Some  would  have  us  believe  that  at  present  there  is  in  society 
no  organization  at  all.  They  use  hard  words,  such  as  "scramble  for 
wealth,"  "suicidal  competition,"  "exploitation,"  "profit-hunting,"  and 
say  that  the  present  state  of  things  is  "chaotic."  Now,  whatever  our 
present  state  may  be,  however  unsatisfactory  it  is,  it  is  certainly  not 

^Adapted  from  Wealth:  A  Brief  Explanation  of  the  Causes  of  Economic 
Welfare,  72-75  (1914), 


PECUNIARY  ORGANIZATION  145 

chaotic.  If  it  were  really  chaotic,  everyone  who  goes  to  his  daily 
work  tomorrow  must  be  a  fool,  since  he  would  be  just  as  likely  to 
get  his  daily  bread  if  he  stayed  at  home.  The  very  fact  that  we  all 
know  as  well  as  we  do  that  certain  results  will  almost  inevitably  fol- 
low upon  a  certain  course  of  action  shows  that  we  are  not  living  in 
chaos.  Our  system  may  be  a  bad  system,  but  it  is  a  system  of  some 
sort;  it  is  not  chaos.  If  a  man  holds  a  book  too  close  to  his  nose 
he  cannot  read  it,  and  so  it  is  with  the  world  of  industry.  If  we  look 
at  it  from  too  close  a  standpoint  we  can  only  see  a  blur. 

Let  us  imagine  a  committee  of  the  Economics  Section  of  the  As- 
sociation for  the  Advancement  of  Science  of  the  planet  Saturn  re- 
porting on  what  they  had  been  able  to  see  of  affairs  on  our  planet 
through  a  gigantic  telescope  big  enough  for  them  to  see  human 
beings  moving  on  its  face.  Would  they  be  able  to  report  that  poor 
Mundus  seemed  quite  chaotic?  Would  they  report  that  everyone 
was  scrambling  for  himself  to  the  disadvantage  of  everyone  else 
in  such  a  way  that  the  general  good  seemed  entirely  neglected? 
Would  they  say  that  all  the  land  in  the  most  convenient  situations 
was  lying  idle,  that  nobody  had  a  roof  over  his  head,  and  that  every- 
one was  running  about  aimlessly  or  sitting  idle  in  imminent  danger 
of  starvation?  They  might  report  something  of  the  kind  if  they 
could  carry  on  conversations  with  certain  people  here  and  if  they 
believed  all  they  were  told,  but  certainly  not  if  they  judged  by  their 
own  observation. 

They  would  be  more  likely  to  report  that  they  had  seen  a  very 
orderly  people  co-operating  on  the  whole  with  a  wonderful  absence 
of  friction — that  they  had  seen  them  come  out  of  their  homes  in  the 
morning  in  successive  batches  and  wend  their  way  by  all  sorts  of 
means  of  locomotion  to  innumerable  different  kinds  of  work,  all  of 
which  seemed  somehow  to  fit  into  each  other  so  that  as  a  whole  the 
vast  population  seemed  to  get  fed,  and  clothed,  and  sheltered.  They 
would  not,  of  course,  vouch  for  the  perfection  of  the  arrangements. 
They  would  see  that  there  were  occasional  irregularities  and  hitches. 
They  might  see  now  and  then  too  many  vehicles  in  one  street,  too 
many  passengers  trying  to  travel  by  one  train  or  tramcar.  They, 
might  even  see  along  the  country  roads  the  melancholy  spectacle  of 
men  tramping  in  both  directions  in  search  of  the  same  kind  of  work. 
They  might  be  able  to  see  that  some  had  too  much — more  than  they 
seemed  to  know  how  to  dispose  of  without  hurting  themselves  and 
others — while  some  evidently  had  too  little  for  healthy  and  happy  ex- 
istence. But  in  spite  of  these  defects  they  would  report,  I  think, 
that  on  the  whole  the  machinery,  whatever  its  exact  nature,  seemed 
to  do  its  work  fairly  eflFectively. 


/. 


\ 


146  CURRENT  ECONOMIC  PROBLEMS 

And  if  we  can  imagine  them  able  to  go  back  five  hundred  or  a 
thousand  years,  we  can  feel  tolerably  sure  that  they  would  report 
still  more  favorably,  since  they  would  then  see  the  enormous  im- 
provement which  had  taken  place  and  would  discover  no  appearance 
of  any  change  which  would  suggest  that  the  existing  system  is  not 
the  outcome  of  an  orderly  development  of  the  institutions  of  the  past. 

I  insist  so  strongly  on  the  fact  that  our  existing  machinery  does 
work,  not  with  any  idea  of  contending  that  all  is  for  the  best  in  the 
best  of  all  possible  worlds,  but  because  to  understand  economics  it  is 
necessary  to  begin  by  considering,  not  the  defects  in  the  machinery, 
ut  the  main  principles  involved  in  its  construction  and  working. 
We  are  likely  to  begin  with  the  defects  because  it  is  they  which  strike 
our  eye  and  excite  our  sympathy.  Seven  per  cent  of  unemployed  are 
much  more  likely  to  make  us  start  thinking  than  ninety-three  per  cent 
who  are  in  employment.  The  emaciated  corpse  of  a  single  persoij 
starved  to  death  naturally  makes  more  impression  on  our  minds  than 
the  comfortable  bodies  of  a  hundred  thousand  sufficiently  fed  citi- 
zens. But  if  we  want  to  understand  the  reason  why  work  and  food 
do  not  quite  "go  round,"  we  should  begin  by  endeavoring  to  discover 
what,  after  all,  certainly  does  not  explain  itself — why  they  go  as  far 
round  as  they  do. 


68.     Competition  and  Industrial  Co-operation^ 

BY  RICHARD  WHATEI,Y 

"Bees,"  said  Cicero,  "do  not  congregate  for  the  purpose  of  con- 
structing a  honeycomb ;  but,  being  by  nature  gregarious  animals,  com- 
bine their  labors  in  making  the  comb.  And  man,  even  more  so,  is 
formed  by  nature  for  society,  and,  subsequently,  as  a  member  of 
society,  promotes  the  common  good  in  conjunction  with  his  fellow- 
creatures."  Most  useful  to  Society,  and  much  to  be  honored,  are 
those  who  possess  the  rare  moral  and  intellectual  endowment  of  an 
enlightened  public  spirit ;  but,  if  none  did  service  to  the  Public  except 
in  proportion  as  they  possessed  this.  Society,  I  fear,  would  fare  but 
ill.  As  it  is,  many  of  the  most  important  objects  are  accomplished 
by  the  joint  agency  of  those  who  never  think  of  them,  nor  have  any 
idea  of  acting  in  concert;  and  that  with  a  certainty,  completeness, 
and  regularity  which  probably  the  most  diligent  benevolence,  under 
the  guidance  of  the  greatest  human  wisdom,  could  never  have  ob- 
tained. 

^Adapted  from  Introductory  Lectures  on  Political  Economy,  2d  ed.,  90- 
98    (1832). 


PECUNIARY  ORGANIZATION  147 

For  instance,  let  anyone  propose  to  himself  the  problem  of  sup- 
plying with  daily  provisions  of  all  kinds  a  city  containing  above  a 
million  of  inhabitants.  Let  him  imagine  himself  intrusted  with  the 
office  of  furnishing  to  this  enormous  host  their  daily  rations.  Any 
considerable  failure  in  the  supply,  even  for  a  single  day,  might 
produce  the  most  frightful  distress.  Some  of  the  articles  consumed 
admit  of  being  reserved ;  but  many,  including  most  articles  of  animal 
food,  and  many  of  vegetable,  are  of  the  most  perishable  nature.  A 
redundancy  of  supply  would  produce  great  waste. 

Moreover,  in  a  district  of  such  vast  extent,  it  is  essential  that  the 
supplies  should  be  so  distributed  among  the  different  quarters  as  to 
be  brought  almost  to  the  doors  of  the  inhabitants.  Moreover, 
whereas  the  supply  of  provisions  for  an  army  is  comparatively  uni- 
form in  kind,  here  the  greatest  possible  variety  is  required,  suitable 
to  the  wants  of  various  classes  of  consumers.  Again,  this  immense 
population  is  extremely  fluctuating  in  numbers ;  and  the  increase  or 
diminution  depends  upon  causes  which  cannot  be  distinctly  foreseen. 

Lastly,  and  above  all,  the  daily  supplies  of  each  article  must  be 
so  nicely  adjusted  to  the  stock  from  which  it  is  drawn — to  the  scanty, 
or  more  or  less  abundant  harvest,  or  other  source  of  supply — to  the 
interval  which  is  to  elapse  before  a  fresh  stock  can  be  furnished,  and 
to  the  probable  abundance  of  the  new  supply,  that  as  little  distress  as 
possible  may  be  undergone;  that  upon  the  one  hand  the  population 
may  not  unnecessarily  be  put  upon  short  allowance,  and  that  on  the 
other  hand  they  may  be  preserved  from  the  more  dreadful  risk  of 
famine,  which  would  ensue  from  their  continuing  a  free  consumption 
when  the  store  was  insufficient  to  hold  out. 

Now  let  anyone  consider  this  problem  in  all  its  bearings,  reflect- 
ing upon  the  enormous  and  fluctuating  number  of  persons  to  be  fed ; 
the  immense  quantity  and  the  variety  of  the  provisions  to  be  fur- 
nished ;  the  importance  of  a  convenient  distribution  of  them,  and  the 
necessity  of  husbanding  them  discreetly;  and  then  let  him  reflect 
upon  the  anxious  toil  which  such  a  task  would  impose  on  a  board  of 
the  most  experienced  and  intelligent  commissaries;  who  after  all 
would  be  able  to  discharge  their  offrce  but  very  inadequately. 

Yet  this  object  is  accomplished  far  better  than  it  could  be  by  any 
effort  of  human  wisdom,  through  the  agency  of  men,  who  think  each 
of  nothing  beyond  his  immediate  interest — and  combine  unconscious- 
ly to  employ  the  wisest  means  for  effecting  an  object,  the  vastness 
of  which  it  would  bewilder  them  even  to  contemplate. 

Early  and  long  familiarity  is  apt  to  generate  a  stupid  indifference 
to  many  objects,  which,  if  new  to  us,  would  excite  great  admiration ; 
and  many  are  inclined  to  hold  cheap  a  stranger  who  expresses  won- 
der at  what  seems  to  us  very  natural  and  simple,  merely  because  we 


148  CURRENT  ECONOMIC  PROBLEMS 

have  been  used  to  it.  A  New  Zealander  who  was  brought  to  Eng- 
land was  struck  with  especial  wonder,  in  his  visit  to  London,  at  the 
mystery  of  how  such  an  immense  population  could  be  fed,  as  he  saw 
neither  cattle  nor  crops.  Many  Londoners,  who  laughed  at  the 
savage's  admiration,  would  probably  have  been  found  never  to  have 
thought  of  the  mechanism  which  is  here  at  work. 

It  is  really  wonderful  to  consider  with  what  ease  and  regularity 
this  important  end  is  accomplished,  day  after  day,  and  year  after 
year,  through  the  sagacity  and  vigilance  of  private  interest  operating 
on  the  numerous  class  of  wholesale  and  retail  dealers.  Each  of  these 
watches  attentively  the  demands  of  his  neighborhood,  or  of  the  mar- 
ket he  frequents,  for  such  commodities  as  he  deals  in.  The  appre- 
hension, on  the  one  hand,  of  not  realizing  all  the  profit  he  might, 
and,  on  the  other,  of  having  his  goods  left  on  his  hands,  either  by 
his  laying  in  too  large  a  stock,  or  by  his  rivals'  underselling  him — 
these,  acting  like  antagonistic  muscles,  regulate  the  extent  of  his 
dealings,  and  the  prices  at  which  he  buys  and  sells.  An  abundant 
supply  causes  him  to  lower  his  price,  and  thus  enables  the  public  to 
enjoy  that  abundance;  while  he  is  guided  only  by  the  apprehension 
of  being  undersold ;  and,  on  the  other  hand,  an  actual  or  apprehended 
scarcity  causes  him  to  demand  a  higher  price. 

For  doing  this,  corn-dealers  in  particular  are  often  exposed  to 
odium,  as  if  they  were  the  cause  of  the  scarcity ;  while  in  reality  they 
are  performing  the  important  service  of  husbanding  the  supply  in 
proportion  to  its  deficiency.  But  the  dealers  deserve  neither  censure 
for  the  scarcity  which  they  are  ignorantly  supposed  to  produce,  nor 
credit  for  the  important  public  service  which  they  in  reality  perform. 
They  are  merely  occupied  in  gaining  a  fair  livelihood.  And  in  the 
pursuit  of  this  object,  without  any  comprehensive  wisdom,  or  any 
need  of  it,  they  co-operate,  unknowingly,  in  conducting  a  system 
which,  we  may  safely  say,  no  human  wisdom  directed  to  that  end 
could  have  conducted  so  well. 

B.     PECUNIARY  COMPETITION 
96.     Economic  Activity  as  a  Struggle  for  Existence* 

BY  ARTHUR  FAIRBANKS 

The  conditions  of  struggle  are  all  but  universal  in  society.  Even 
writers  who  regard  society  as  an  organism  point  out  a  degree  of 
competition  between  different  functions  and  organs  in  the  animal 
organism,  and  profess  no  surprise  that  with  the  less  rigid  structure 

•Adapted  from  Introduction  to  Sociology,  239-254  (1896). 


PECUNIARY  ORGANIZATION  149 

of  society,  this  competition  becomes  a  far  more  important  phase  of 
all  activity. 

It  needs  no  second  glance  to  satisfy  one  that  the  economic  activ- 
ity of  society  may  fittingly  be  called  a  struggle.  Follow  some  indus- 
trial product  from  the  factory  up  to  the  time  when  it  is  consumed. 
The  manufacturer  of  cotton  goods  chooses  between  competing 
places  for  his  factory ;  the  makers  of  his  machinery  are  struggling 
with  each  other  to  produce  most  economically  engines,  looms,  etc., 
that  are  best  adapted  to  his  work ;  raw  products  he  buys  from  sellers 
competing  in  the  open  market;  labor  he  hires  from  among  men 
who  bid  against  each  other  for  his  work ;  transportation  companies 
compete  with  one  another  in  cheaply  transferring  his  goods  to  mar- 
ket ;  and,  in  the  market,  seller  is  struggling  with  seller  for  the  priv- 
ilege of  a  sale  with  profit ;  buyer  and  seller  bargain  together  to  agree 
on  a  price.  The  present  ctnixxry  has  seen  barrier  after  barrier  swept 
away,  till  the  whole  world  enters  more  or  less  freely  into  the  one 
struggle;  family  and  social  distinctions  are  being  obliterated  in  the 
industrial  world;  customs  and  laws  in  restraint  of  trade  have  been 
set  aside. 

The  result  of  this  sudden  expansion  of  the  industrial  struggle 
is  to  force  more  clearly  on  thinkers  the  fact  that  civilization  moves, 
not  away  from  struggle,  but  to  new  forms  of  struggle.  And  the 
efforts  to  deal  with  the  many  difficulties  which  have  arisen  from  this 
sudden  change  make  it  clear  that  it  is  not  by  seeking  to  prevent 
struggle,  but  by  modifying  its  forms,  that  progress  will  be  made. 
Laborers  who  suffered  in  an  unequal  struggle  have  won  their  rights 
by  combining  and  entering  the  struggle  as  a  larger  unit.  Groups 
of  cooperative  buyers  have  united  to  do  away  with  the  petty  compe- 
tition of  the  retail  store,  by  elevating  competition  to  a  more  reason- 
able plane.  Nor  are  the  greatest  monopolies  of  the  day  altogether 
free  from  the  higher  forms  of  pressure  in  the  economic  struggle, 
uncontrolled  as  they  may  seem  for  a  time. 

The  change  in  the  form  of  the  struggle  modifies  the  competing 
units.  More  in  evidence  just  now  is  the  struggle  between  groups 
determined  by  class  lines  than  groups  determined  by  territorial 
lines.  With  the  passing  of  the  dominance  of  individualism,  the 
struggle,  apparently,  is  between  larger  groups.  The  truth  is  that 
a  simple  struggle  is  being  succeeded  by  a  complex  struggle  between 
different  kinds  of  units.  The  individual  is  freed  from  numerous 
restrictions  that  used  to  hamper  him,  but  the  competition  in  which 
he  engages  is  limited  in  a  new  way.  Not  only  does  increasing  dif- 
ferentiation effectively  limit  the  number  with  whom  he  competes, 
but  much  of  the  burden  of  the  struggle  is  shifted  from  the  shoulders 


ISO  CURRENT  ECONOMIC  PROBLEMS 

of  the  isolated  individual  to  the  group  of  which  he  is  a  member. 
Group  competes  with  group,  and  the  individual  competes  only  with 
the  other  members  of  the  group.  The  town  removes  many  phases 
of  the  struggle  for  existence  from  each  individual,  the  state  removes 
many  others;  but  within  each  political  unit  other  ends  call  out  the 
energy  of  the  individual  citizen.  The  manufacturer,  in  competing 
with  other  manufacturing  groups,  removes  from  his  workmen  much 
of  the  stress  of  economic  struggle,  but,  within  definite  lines,  the 
workman  has  only  the  more  bitter  a  battle  to  fight. 

But  no  group  organization  has  or  can  eliminate  personal  competi- 
tion between  the  members  of  a  group.  The  actual  outcome  of  the 
social  process  in  which  the  fit  tend  to  survive  and  multiply  depends 
largely  upon  the  organization  of  a  given  society.  With  the  removal 
of  rigid  barriers  there  has  developed  a  more  or  less  definite  appara- 
tus for  weeding  out  the  unfit,  and  advancing  those  who  are  fit  for 
better  things.  In  the  contest  for  industrial  position,  the  laborer  who 
can  most  economically  perform  a  given  task  is  the  only  one  to  whom 
an  employer  can  aflford  to  give  the  task.  Each  industrial  crisis  con- 
stitutes a  severe  test  for  everyone  in  the  industrial  world ;  the  less 
fit  are  thrown  out  of  their  place  in  the  industrial  world,  wherever 
it  may  be.  The  so-called  "out-of-work"  class  simply  consists  of 
those  whose  work  cannot  be  utilized.  During  periods  of  industrial 
expansion,  the  man  of  wisdom,  skill,  and  vigor  expects  advance- 
ment, because  new  positions  are  being  created  for  which  these  are 
the  only  recommendation.  Always,  everywhere,  this  contest  for 
individual  position  is  going  on. 

70.     Competition  and  Organization* 

BY  CHARLES  H.  COOLEY 

It  seems  to  me  that  the  fundamental  point  always  touched  upon 
in  questions  of  •  competition  is  the  meaning  of  competition  in  rela- 
tion to  organization.  Now  what  is  the  meaning  of  competition  in 
this  regard  ?  I  take  it  to  be  simply  an  organizing  process.  The  world 
is  full  of  various  agents.  These  agents  in  one  way  or  another  are 
continually  getting  displaced  in  the  social  structure,  by  the  death  of 
individuals,  the  decay  of  groups  and  systems,  etc.  Some  method 
must  be  found  of  constantly  building  up  the  organization.  If  there 
is  any  other  method  of  doing  this  than  competition  in  the  broad 
sense  I  do  not  know  what  it  is.    There  must  be  some  means  of  com- 

*  Adapted  from  an  article  in  the  American  Journal  of  Sociology,  XIII, 
655-^58  (1907). 


PECUNIARY  ORGANIZATION  151 

paring  and  selecting  the  agents  and  adapting  them  to  their  work. 

Competition  is  not  merely  a  cause  of  organization;  it  is  also  an 
effect.  As  everywhere  else  in  the  interdependent  social  system,  we 
find  all  influences  interacting,  each  a  cause  of  change  in  the  other. 
Organization  is  a  cause  in  that  it  furnishes  motives  and  standards 
and  methods  of  competition.  These  things  are  determined  by  cus- 
tom, by  law,  by  public  opinion,  by  the  inherited  ideas  of  men. 

Taking  these  points  for  granted,  we  come  to  the  question,  What 
is  the  matter  with  existing  competition?  I  should  say  the  matter  is 
singly  that  existing  competition  shares  in  the  prevailing  disintegra- 
tion of  social  structures.  We  are  all  familiar  with  this  disintegra- 
tion. It  is  chiefly,  though  not  entirely,  economic  in  its  origin.  The  re- 
sult is  that  the  standards,  the  methods  of  competition,  today,  are  very 
far  from  being  what  the  most  enlightened  human  nature  would  de- 
sire to  have  them.  They  are  what  is  sometimes  called  "individual- 
istic" in  the  bad  sense  of  the  word. 

Perhaps  I  can  best  indicate  this  by  taking  an  example.  Let  us 
suppose  that  there  is  a  ship  sailing  on  the  seas,  properly  manned 
with  officers  and  crew.  Now,  here  is  an  organization.  It  may  not 
be  apparent  at  first  that  competition  is  going  on  in  this  little  society ; 
but  it  is.  If  a  mate  does  well,  he  may  very  likely  get  appointed  cap- 
tain on  the  next  cruise,  or  his  wages  may  be  raised.  Or  again  the 
ship  may  be  competing  with  another  ship  across  the  ocean  and  vari- 
ous advantages  may  accrue  if  it  succeeds.  Here  is  well-ordered  com- 
petition in  which  merit  succeeds.  That  is  to  say,  the  test  of  success  is 
something  for  the  good  of  society,  namely,  the  welfare  of  the  ship 
and  of  commerce.  But  suppose  that  the  ship  quite  unexpectedly  in 
the  dark  runs  upon  an  iceberg.  The  captain  and  the  crew  are 
thrown  into  the  water.  The  society  immediately  and  entirely  dis- 
appears. The  individuals  are  all  struggling  in  the  water,  and  a  new 
kind  of  competition  takes  place.  From  the  good  of  the  ship  and 
society,  it  falls  back  on  the  animal  instinct  for  self-preservation. 
Man  becomes  a  mere  brute  under  these  circumstances.  The  customs 
and  modes  of  thought  that  keep  society  on  a  proper  level  are  de- 
stroyed. 

Something  analogous  to  this  is  widely  prevalent  in  present 
society.  To  pass  on  to  the  question  as  to  how  competition  may  be- 
come better:  It  is  by  building  up  the  social  organization  through 
competition  itself  and  raising  the  level  of  that  competition  by  the 
ordinary  methods  of  human  endeavor. 


152  CURRENT  ECONOMIC  PROBLEMS 

71.     The  Beneficence  of  Competition^ 

BY  CHARIvES  KINGSLEY 

Sweet  competition !  Heavenly  maid ! — Now-a-days  hymned  alike 
by  penny-a-liners  and  philosophers  as  the  ground  of  all  society — 
the  only  real  preserver  of  the  earth!  Why  not  of  Heaven,  too? 
Perhaps  there  is  competition  among  the  angels,  and  Gabriel  and 
Raphael  have  won  their  ranks  by  doing  the  maximum  of  worship 
on  the  minimum  of  grace  ?  We  shall  know  some  day.  In  the  mean- 
time, "these  are  thy  works,  thou  parent  of  all  good!"  Man  eating 
man,  eaten  by  man,  in  every  variety  of  degree  and  method !  Why 
does  not  some  enthusiastic  political  economist  write  an  epic  on  "The 
Consecration  of  Cannibalism"? 

72.     Competition  and  Selfishness* 

BY   S.   J.   CHAPMAN 

I  must  reiterate,  in  order  that  there  may  be  no  mistake,  that 
modern  analytical  economics  neither  assumes  nor  advocates  selfish- 
ness. But  without  relegating  sentiment  to  Saturn,  we  may  hold 
that  the  affections  do  not  directly  enter  into  most  business  transac- 
tions. "Oh  'tis  love,  'tis  love,  that  makes  the  world  go  round," 
asserted  the  duchess  in  Alice  in  Wonderland.  "Somebody  whis- 
pered," said  Alice,  "that  it's  done  by  everybody  minding  his  own 
business."  However,  among  the  impulses  which  are  the  motive 
power  of  business  activities,  the  affections  may  play  a  large  part 
indirectly.  A  man  may  work  his  best  to  make  as  much  as  possible 
in  the  interests  of  his  family  or  friends,  or  even  for  philanthropic 
purposes.  Finally  it  must  not  be  imagined  that,  in  the  absence  of 
altruistic  motives,  a  man  who  works  his  hardest  for  success  must 
be  sordid.  The  passion  of  great  business  leaders  is  commonly  quite 
other  than  that  of  the  miser.  Because  money  provides  the  counters 
which  measure  commercial  triumphs,  we  are  apt  to  go  astray  in 
our  analysis.  They  who  play  cards  for  cowries  are  not  mastered 
by  a  passion  for  cowries. 

73.    The  Ethics  of  Competition' 

BY  J.  A.  HOBSON 

The  consciousness  of  social  service  as  a  stimulus  to  work  is  not 
inconsistent  with  competition.     The  artist  who  labours  to  express 

•From  "Cheap  Qothes  and  Nasty,"  in  Alton  Locke,  Ixviii-lxix  (1850). 
•From  Outlines  of  Political  Economy,  17-18  (1911). 
^Adapted   from   The  Industrial  System,  307-308    (1909). 


PECUNIARY  ORGANIZATION  153 

himself  to  others  can  only  succeed  on  condition  that  he  keeps  before 
his  mind  these  others :  mere  self-expression  is  not  art  at  all.  Though, 
therefore,  the  artist  may  be  working  for  gain,  and  may  be  conscious 
of  his  competitors,  the  interest  in  his  work  and  his  capacity  to  do  it 
involves  some  regard  for  the  public.  The  same  applies  also  to  the 
artisan  so  far  as  his  manipulation  of  material  involves  conscious 
regard  for  its  utility,  and  therefore  consideration  of  the  needs  of 
the  consumers.  So,  too,  with  the  professions;  however  keen  the 
rivalry  of  professional  men  to  get  employment  may  be,  the  nature 
of  the  work  they  do  involves  the  detailed  operation  of  disinterested 
motives  leading  them  to  value  their  work  for  its  real  social  utility 
rather  than  for  the  gain  it  brings  them.  This  is  the  well-recog- 
nised difference  between  a  profession  and  a  trade,  which  has  always 
underlain  the  lower  esteem  in  which  tradesmen  and  the  trading 
spirit  have  been  held. 

It  is,  indeed,  in  commerce,  and  primarily  in  retail  trade,  rather 
than  in  manufacture  or  any  branch  of  production,  that  the  ethics 
of  competition  appears  to  do  most  damage,  the  reason,  of  course, 
being  that  in  the  dealing  processes  antagonism  of  human  interests  is 
sharpest,  and  the  conscious  energy  of  dealers  is  most  confined  to  the 
pursuit  of  personal  profit. 

In  most  manufactures,  though  the  employer  is  not  in  business 
"for  his  health,"  but  primarily  to  make  profits,  the  skill  and  intricacy 
of  the  practical  operations  which  he  conducts  absorb  much  of  his 
attention,  and  pride  in  the  character  of  his  business  and  the  equality 
of  its  products  dignifies  his  conduct.  Just  in  proportion  as  he  is  not 
forced  to  concentrate  his  thought  and  feeling  upon  the  art  of  getting 
business  away  from  other  firms  and  pushing  his  claims  against  theirs 
in  the  market,  does  his  work  take  conscious  shape  in  his  mind  as  the 
social  function  which  it  really  is.  Just  in  proportion  as  the  com- 
petitive activities  assume  prominence  is  he  compelled  to  sink  this 
social  feeling,  to  push  his  goods  in  conscious  rivalry  with  those  of 
other  firms,  and  to  cultivate  those  arts  of  sweating,  adulteration,  and 
deceit,  which  seem  necessary  to  enable  him  to  sell  goods  at  a  profit. 

Such  considerations  indicate  that  the  moral  economy  of  compe- 
tition is  not  simple  or  uniform :  where  it  takes  shape  in  the  rivalry 
of  Euripides,  Aeschylus  and  Sophocles  to  win  the  favour  of  an 
Athenian  public  for  their  respective  dramas  it  may  act  as  a  direct 
incentive  of  the  highest  form  of  social  wealth;  where  it  operates 
among  struggling  grocers  in  the  same  street  it  may  mean  starved 
assistants,  short  weights  an^  doctored  goods. 


154  CURRENT  ECONOMIC  PROBLEMS 

74.     State  Determination  of  the  Plane  of  Competitive  Action* 

BY  HUNRY  C.  ADAMS 

What  is  meant  by  saying  that  unguarded  competition  tends  to 
lower  the  moral  sense  of  a  business  community?  Wherever  the 
personal  element  of  a  service  comes  prominently  into  view,  and  the 
character  of  the  agent  rather  than  the  quality  of  goods  is  forced 
into  prominence,  probity  has  its  market  value  and  honesty  may  be 
the  best  policy.  But  in  the  commercial  world  as  at  present  organ- 
ized, where  the  producer  and  the  consumer  seldom  come  into  per- 
sonal contact,  the  moral  arrangements  followed  in  the  process  of 
production  are  not  permitted  a  moment's  thought.  All  that  is  con- 
sidered by  the  purchaser  is  the  quality  and  the  price  of  the  goods. 
Those  that  are  cheap  he  will  buy;  those  that  are  dear  he  will  reject; 
and  in  this  manner  he  encourages  those  methods  of  production  that 
lead  to  cheapness. 

There  are  of  course  exceptions  to  this  rule.  But  these  exceptions 
do  not  vitiate  it.  There  must  be  substantial  uniformity  in  the 
methods  of  all  producers  who  continue  in  competition  with  each 
other.  Each  man  in  the  business  must  adopt  those  rules  of  manage- 
ment which  lead  to  low  prices,  or  he  will  be  compelled  to  quit  the 
business.  And  if  this  cheapness,  the  essential  requisite  of  business 
success,  be  the  result  of  harsh  and  inhuman  measures,  or  if  it  lead 
to  misrepresentation  and  dishonesty  on  the  part  of  salesmen  or 
manufacturers,  the  inevitable  result  must  be  that  harshness  and 
inhumanity  will  become  the  essential  condition  of  success,  and  busi- 
ness men  will  be  obliged  to  live  a  dual  existence. 

The  fact  upon  which  we  insist  at  this  point  is  that  an  isolated 
man  is  powerless  to  stem  the  tide  of  prevalent  custom,  and  that  in 
many  lines  of  business  those  men  whose  moral  sensibilities  are  the 
most  blunted  exercise  an  influence  in  determining  prevalent  cus- 
tom altogether  .out  of  proportion  to  their  importance  as  industrial 
agents.  Suppose  that  of  ten  manufacturers  nine  have  a  keen  appre- 
ciation of  the  evils  that  flow  from  protracted  labor  on  the  part  of 
women  and  children ;  and,  were  it  in  their  power,  would  gladly  pro- 
duce cottons  without  destroying  family  life,  and  without  setting  in 
motion  those  forces  that  must  ultimately  result  in  race-deterioration. 
But  the  tenth  man  has  no  such  apprehensions.  The  claims  of  family 
life,  the  rights  of  childhood,  and  the  maintenance  of  social  well-be- 
ing, are  but  words  to  him.  He  measures  success  wholly  by  the  rate 
of  profit.    If  now  the  state  stand  as  an  unconcerned  spectator,  the 

"Adapted  from  The  Relation  of  the  State  to  Industrial  Activity,  39-47 
(1887). 


PECUNIARY  ORGANIZATION  155 

nine  men  will  be  forced  to  conform  to  the  methods  adopted  by  the 
one.  Their  goods  come  into  competition  with  his  goods,  and  .we 
who  purchase  do  not  inquire  under  what  conditions  they  were  man- 
ufactured. In  this  manner  it  is  that  men  of  the  lowest  character 
have  it  in  their  power  to  give  the  moral  tone  to  the  entire  business 
community.  One  of  the  most  common  complaints  of  business  men 
is  that  they  are  obliged  to  conform  to  rules  of  conduct  which  they 
despise.  It  is  a  necessary  result  of  a  competitive  society  that  the 
plane  of  business  morals  is  lower  than  the  moral  character  of  a 
great  majority  of  men  who  compose  it. 

But  what,  it  may  be  asked,  can  the  state  do  in  the  premises? 
The  state  has  done  much  and  can  do  more.  That  code  of  enact- 
ments known  as  "factory  legislation"'  is  addressed  to  just  this  evil 
of  competitive  society,  and  it  only  remains  for  us  to  formulate  for 
this  code  an  economic  defense.  The  general  rule  laid  down  for  the 
guidance  of  state  interference  in  industries  was  that  society  should 
be  secured  in  the  benefits  while  secured  against  the  evils  of  competi- 
tive action.  When  the  large  body  of  competitors  agree  respecting 
some  given  method  of  procedure,  but  are  powerless  to  follow  it 
because  a  few  men  engaged  in  the  same  line  of  business  refuse  to 
conform  to  the  proposed  regulations,  it  becomes  the  province  of  the 
state  to  incorporate  the  wish  of  the  majority  in  some  practical  law. 
In  this  manner  there  is  established  a  legal  plane  of  competition 
higher  than  that  which  could  be  maintained  in  the  absence  of  legal 
enactment.  This  is  no  curtailment  of  competitive  action,  but  a  de- 
termination of  the  manner  in  which  it  shall  take  place.  If  the  law 
says  that  no  child  shall  be  employed  in  factories,  the  plane  of  com- 
petition is  raised  to  the  grade  of  adult  labor.  If  married  women 
are  refused  employment,  the  nature  of  competition  is  again  changed, 
but  competition  is  not  restricted.  As  the  result  of  such  legislation 
some  of  the  evils  of  the  present  system  would  disappear,  while  all 
the  benefits  of  individual  action  would  yet  be  conserved  to  society. 

This,  then,  is  one  defense  of  interference  on  the  part  of  the  state. 
It  lies  within  its  proper  functions  to  determine  the  character  of 
such  competitive  action  as  shall  take  place.  There  must  be  con- 
formity of  action  between  competitors,  and  the  only  question  is 
whether  the  best  or  the  worst  men  shall  set  the  fashion.  One  can- 
not be  neutral  with  regard  to  this  question.  No  vote  at  all  is  a 
negative  vote ;  and  a  vote  in  the  negative  is  as  positive  in  its  results 
as  one  in  the  aflfirmative.  Should  the  state  insist  on  following  the 
rule  of  non-interference,  society  cannot  hope  to  adjust  its  productive 
processes  to  the  best  possible  form  of  organization. 


156  CURRENT  ECONOMIC  PROBLEMS 

We  have  all  of  us,  doubtless,  heard  the  claim  that  the  state  is  a 
moral  agency;  that  it  is  imposed  with  moral  duties.  For  a  number 
of  years  after  this  phrase  came  to  my  notice,  it  presented  to  my 
mind  no  distinct  meaning.  It  seemed  to  me  to  cover  the  philan- 
thropic purpose  of  shallow  intellects,  and  to  be  most  frequently 
used  by  men  who  knew  not  the  way  of  guile  nor  anything  else  for 
certain.  But  properly  understood  this  phrase  contains  a  deep  truth 
of  social  philosophy.  It  does  not  mean  that  the  law  is  a  schoolmas- 
ter coercing  men  to  be  good,  nor  that  it  is  the  depository  of  a  social 
ideal  to  be  admired ;  but,  on  the  contrary,  it  means  that  the  law  is  an 
agency  for  the  realization  of  the  higher  ideals  of  men  by  guarding 
them  from  that  competition  which  would  otherwise  force  them  to  a 
lower  plane  of  action,  or  else  force  them  out  of  business.  In  per- 
forming such  a  duty  the  state  performs  a  moral  function,  for  it  reg- 
ulates competition  to  the  demands  of  the  social  conscience.  Under 
the  guiding  influence  of  such  a  thought  the  immediate  interests  of 
the  individual  may  be  made  to  coincide,  in  some  degree,  with  the 
fundamental  interests  of  society,  and  thus,  by  disregarding  the  dog- 
ma of  laissez-faire,  the  fundamental  purpose  of  those  formulating 
the  doctrine  is  in  part  realized. 

C.     PRICE-FIXING  BY  AUTHORITY 
75.     The  Statute  of  Laborers^ 

Edward  to  the  Reverend  Father  in  Christ,  William,  Archbishop 
of  Canterbury,  Primate  of  all  England,  greeting.  Because  a  great 
part  of  the  people,  and  especially  of  workmen  and  servants,  have 
lately  died  in  the  pestilence,  many  seeing  the  necessities  of  masters 
and  great  scarcity  of  servants,  will  not  serve  unless  they  may  re- 
ceive excessive  wages,  and  others  preferring  to  beg  in  idleness  rather 
than  by  labor  to  get  their  living;  we,  considering  the  grievous  in- 
commodities  which  of  the  lack  especially  of  ploughmen  and  such 
laborers  may  hereafter  come,  have  upon  deliberation  with  the  pre- 
lates and  the  nobles  and  learned  men  assisting  us,  with  their  unani- 
mous counsel  ordained: 

That  every  man  and  woman  of  our  realm  of  England,  of  what 
condition  he  be,  free  or  bond,  able  in  body,  and  within  the  age  of 
sixty  years,  not  living  in  merchandising,  nor  exercising  any  craft, 
nor  having  of  his  own  whereof  he  may  live,  nor  land  of  his  own 
about  whose  tillage  he  may  occupy  himself,  and  not  serving  any 
other;  if  he  be  required  to  serve  in  suitable  service,  his  estate  con- 
sidered, he  shall  be  required  to  serve  him  which  shall  so  require  him ; 

•Adapted  from  Statutes  of  the  Realm,  307-308  (about  1349). 


PECUNIARY  ORGANIZATION  157 

and  take  only  the  wages,  livery,  meed,  or  salary  which  were  accus- 1 
tomed  to  be  given  in  the  places  where  he  oweth  to  serve,  the  twen-  I 
tieth  year  of  our  reign  of  England.  Provided  always  that  the  lords 
be  preferred  before  others  so  in  their  service  to  be  retained ;  so  that, 
nevertheless,  the  said  lords  shall  retain  no  more  than  necessary  for 
them.  And  if  any  man  or  woman  being  so  required  to  serve  will  not 
do  the  same,  and  that  be  proved,  he  shall  immediately  be  taken  to  the 
next  gaol,  there  to  remain  under  straight  keeping,  till  he  find  surety 
to  serve. 

If  any  reaper,  mower,  other  workman  or  servant,  retained  in 
any  man's  service,  do  depart  from  the  said  service  without  reason- 
able cause  or  license,  before  the  term  agreed,  he  shall  have  pain  of 
imprisonment;  and  no  one,  under  the  same  penalty,  shall  presume 
to  receive  or  retain  such  a  one. 

No  one,  moreover,  shall  pay  or  promise  to  pay  to  anyone  more 
wages  than  was  accustomed;  nor  shall  anyone  in  any  other  manner 
demand  or  receive  them,  upon  pain  of  doubling  of  that  which  shall 
have  been  so  paid  to  him  who  thereof  shall  feel  himself  aggrieved; 
and  if  none  such  shall  sue,  then  the  same  shall  be  applied  to  any 
one  of  the  people  that  will  sue.  And  if  lords  presume  in  any  point 
to  come  against  this  present  ordinance,  then  suit  shall  be  made 
against  them.  And  if  any  one  before  this  present  ordinance  has 
covenanted  with  any  so  to  serve  for  more  wages,  he  shall  not  be 
bound  to  pay  more  than  was  wont ;  nor,  tmder  the  same  penalty,  shall 
he  presume  to  pay  more. 

Also,  saddlers,  skinners,  white  tawyers,  cordwainers,  tailors, 
smiths,  carpenters,  masons,  tilers,  shipwrights,  carters,  and  all  other 
artificers  and  workmen,  shall  not  take  for  their  labor  and  workman- 
ship above  the  same  that  was  wont  to  be  paid  to  such  persons  the 
said  twentieth  year. 

Also,  that  butchers,  fishmongers,  innkeepers,  brewers,  bakers, 
poulterers,  and  all  other  sellers  of  all  manner  of  victuals  be  bound  to 
sell  the  same  victuals  for  a  reasonable  price,  having  respect  to  the 
price  that  such  victuals  are  sold  at  in  the  places  adjoining,  so  that 
the  said  sellers  shall  have  moderate  gains;  and  if  any  sell  the  said 
victuals  in  any  other  manner,  and  thereof  be  convicted,  he  shall  pay 
the  double  of  the  same  that  he  so  received  to  the  party  injured. 

And  because  that  many  strong  beggars,  as  long  as  they  may  live 
by  begging,  do  refuse  to  labor,  giving  themselves  to  idleness  and 
vice,  and  sometimes  to  theft  and  other  abominations ;  none  upon  the 
said  plan  of  imprisonment  shall,  under  the  color  of  pity  or  alms,  give 
anything  to  such,  so  that  thereby  they  may  be  compelled  to  labor  for 
their  necessary  living. 


158  CURRENT  ECONOMIC  PROBLEMS 

76.     Price-Fixing  by  Commission^" 

BY  MARTIN  LUTHER 

The  merchants  have  a  common  rule  among  them,  it  is  their  motto 
and  the  bottom  of  all  their  practices :  I  shall  sell  my  wares  as  dear 
as  I  can.  This  I  hold  to  be  my  right.  But  it  means  making  room  for 
greed  and  opening  the  door  and  window  of  hell.  What  else  is  this 
than  saying :  I  will  give  no  heed  to  my  neighbor,  if  only  I  may  have 
my  profit  and  greed  full ;  what  do  I  care  if  it  brings  my  neighbor  ten 
ills  at  once  ?  So  you  see  how  this  motto  goes  so  straight  and  shame- 
lessly against  not  only  Christian  love,  but  against  natural  law  as 
well.  What  should  there  be  in  merchandising  but  sin  where  such  a 
wrong  is  the  motto  and  rule?  By  this  token  merchandising  can  be 
nothing  else  than  stealing  and  plundering  others  of  their  own. 

For  on  this  ground,  when  the  rogue's  eye  and  the  greedy-gut 
mark  that  anyone  must  have  their  ware,  they  make  their  use  and  gain 
out  of  it.  They  look  not  at  the  worth  of  the  ware,  nor  at  the  value 
of  their  service,  nor  their  risk,  but  simply  at  the  need  and  want  of 
their  neighbor — not  to  help  him,  but  to  use  these  for  their  own  ad- 
vantage, and  to  put  up  their  ware  which  they  would  leave  at  a  low 
price  if  it  were  not  for  the  necessity  of  their  neighbor.  And  so 
through  their  greed  the  ware  must  have  a  price  as  much  higher  as 
the  need  of  the  neighbor  is  greater.  Tell  me,  is  not  thus  the  poor 
man's  need  sold  to  him  with  the  ware? 

It  should  not  be :  I  will  sell  my  wares  as  dear  as  I  can  and  please, 
but  thus :  I  will  sell  my  wares  as  dear  as  I  should,  or  is  right  and 
proper.  For  thy  selling  should  not  be  a  work  that  is  within  thy 
power  and  will,  without  all  law  and  limit,  as  though  thou  wert  a  god 
bounden  to  no  one;  but  because  thy  selling  is  a  work  that  thou 
performest  to  thy  neighbor  it  should  be  restrained  within  such  law 
and  conscience  that  thou  mayest  practice  it  without  harm  and 
injury  to  thy  neighbor. 

Asketh  thou  then :  Well,  how  dear  shall  I  sell  it,  then  ?  How 
shall  I  strike  what  is  right  and  just  so  that  I  may  not  overreach  my 
neighbor?  Answer :  That  is  indeed  framed  in  no  speech  or  writing ; 
no  one  hath  yet  undertaken  to  fix  the  price  of  every  ware.  The 
reason  is  this :  Wares  are  not  all  alike ;  one  is  brought  farther  than 
another,  one  takes  more  outlay  than  another,  so  that  in  this  manner 
all  is  uncertain  and  must  remain  so,  and  nothing  can  be  fixed,  as 
little  as  one  can  fix  one  certain  city  whence  they  shall  be  brought,  or 
a  set  outlay  for  all,  since  it  may  happen  that  one  and  the  same  ware, 

"Adapted  from  the  address  on  "Trade  and  Usury,"  in  The  Open  Court, 
XI,  18-20.    Translated  by  W.  H.  Carruth.     Copyright  (1524). 


PECUNIARY  ORGANIZATION  159 

from  one  and  the  same  city  and  brought  on  one  and  the  same  road, 
may  cost  more  today  than  a  year  ago  by  reason  of  the  road  and  the 
weather  being  worse,  or  some  other  chance  that  causes  mor^  outlay 
than  at  another  time.  But  it  is  just  that  a  merchant  should  gain  so 
much  on  his  wares  that  his  outlay,  his  pains,  and  risk  should  be  made 
good.  Who  can  serve  or  work  for  nothing  ?  This  saith  the  Gospel : 
"A  laborer  is  worthy  of  his  hire." 

But,  not  to  pass  over  the  matter  in  silence,  the  best  and  safest 
way  would  be  that  worldly  authority  should  appoint  and  ordain  iti 
this  matter  sensible,  honest  people  who  might  consider  all  wares  and 
the  outlay  upon  them  and  set  accordingly  the  meet  and  limit  of  their 
value,  so  that  the  merchant  might  then  add  his  service  and  get  his 
decent  living  from  it ;  as  indeed  in  some  places  the  price  of  wine,  fish, 
bread,  and  the  like  is  set.  But  we  Germans  are  too  busy  with  drink- 
ing and  dancing  to  give  heed  to  such  regulation.  Since,  therefore, 
such  regulation  is  not  to  be  hoped  for,  the  next  best  counsel  is  that 
we  value  the  wares  as  the  common  market  gives  and  takes,  or  as  the 
custom  of  the  country  is  to  give  and  take ;  for  in  this  as  the  saw  holds 
good,  "Do  as  others  do,  and  thou'lt  do  no  folly." 

77.    The  Futility  of  Price-Fixing" 

BY  JOHN  WITHERSPOON 

If  you  make  a  law  that  I  shall  be  obliged  to  sell  my  grain,  my 
cattle,  or  any  commodity,  at  a  certain  price,  you  not  only  do  what 
is  unjust  and  impolitic,  but  with  all  respect  be  it  said,  you  speak  non- 
sense ;  for  I  do  not  sell  them  at  all :  you  take  them  from  me.  You 
are  both  buyer  and  seller  and  I  am  the  sufferer  only. 

I  cannot  help  observing  that  laws  of  this  kind  have  an  inherent 
weakness  in  themselves ;  they  are  not  only  unjust  and  unwise,  but  for 
the  most  part  impracticable.  They  are  an  attempt  to  apply  authority 
to  that  which  is  not  its  proper  object,  and  to  extend  it  beyond  its 
natural  bounds ;  in  both  which  we  shall  be  sure  to  fail.  The  produc- 
tion of  commodities  must  be  the  effect  of  industry,  inclination,  hope, 
and  interest.  The  first  of  these  is  very  imperfectly  reached  by  au- 
thority, and  the  other  three  cannot  be  reached  by  it  at  all.  Accord- 
ingly we  found  in  this  country,  and  every  other  society  which  ever 
tried  such  measures  found,  that  they  produced  an  effect  directly 
contrary  to  what  was  expected  from  them.     Instead  of  producing 

^^Adapted  from  "An  Essay  on  Money,"  in  The  Works  of  the  Rev.  John 
Witherspoon,  IV,  224-226.    2d  ed.  (1802). 


i6o  CURRENT  ECONOMIC  PROBLEMS 

moderation  and  plenty,  they  uniformly  produced  deamess  and 
scarcity.  It  is  worth  while  to  observe  that  some  of  our  legislatures 
saw  so  far  into  the  matter  as  to  perceive  that  they  could  not  regulate 
the  price  of  commodities,  without  regulating  the  price  of  the  industry 
that  produced  them.  Therefore  they  regulated  the  price  of  day 
laborers.  This,  however,  though  but  one  species  of  industry,  was 
found  to  be  wholly  out  of  their  power. 

There  are  some  instances  mentioned  at  the  time  when  these 
measures  went  into  vogue,  which  superficial  reasoners  supposed  to 
be  examples  of  regulating  laws  attended  with  good  effects.  These 
were  the  regulation  of  the  prices  of  chairs,  hackney-coaches,  and 
ticket -porters  in  cities,  public  ferries,  and  some  others.  But  this  was 
quite  mistaking  the  nature  of  the  thing.  These  instances  have  not 
the  least  connection  with  laws  regulating  prices  in  voluntary  com- 
merce. In  all  these  cases  the  persons  who  are  employed  solicit  the 
privilege,  obtain  a  license,  and  come  under  voluntary  engagements 
to  ask  no  higher  price ;  so  that  there  is  as  complete  a  free  contract  as 
in  buying  and  selling  in  open  shops.  I  am  so  fully  convinced  of  the 
truth  and  justice  of  the  above  principles  that  I  think,  were  it  proper 
at  this  time,  I  could  show  that  even  in  the  most  enlightened  nations 
of  Europe  there  are  still  some  laws  subsisting  which  work  in  direct 
opposition  to  the  intention  of  the  makers.  Of  this  kind  in  general 
are  the  laws  against  forestalling  and  regrating.  They  are  now  in- 
deed most  of  them  asleep ;  but  so  far  as  they  are  executed,  they  have 
the  most  powerful  tendency  to  prevent,  instead  of  promoting  full 
and  reasonable  markets.  As  an  example  of  our  own  skill  in  this 
branch  a  law  was  passed  in  Pennsylvania  in  time  of  the  war  pre- 
cisely upon  this  principle.  It  ordained  that  in  all  imported  articles 
there  should  be  but  one  step  between  the  importer  and  consumer,  and 
that  therefore  none  of  those  who  bought  from  the  ship  should  be 
allowed  to  sell  again.  The  makers  of  it  considered  that  every  hand 
through  which  a  commodity  passed  must  have  a  profit  upon  it,  which 
would  therefore  greatly  augment  the  cost  to  the  consumer  at  last. 
But  could  anything  in  the  world  be  more  absurd?  How  could  a 
family  at  one  hundred  miles  distance  from  the  seaboard  be  supplied 
with  what  they  wanted?  In  opposition  to  this  principle  it  may  be 
safely  affirmed  that  the  more  merchants  the  cheaper  goods,  and  that 
no  carriage  is  so  cheap,  nor  any  distribution  so  equal  or  so  plentiful 
as  that  which  is  made  by  those  who  have  an  interest  in  it  and  expect 
a  profit  from;  it. 


PECUNIARY  ORGANIZATION  lOl 

D.     THE  FUNCTION  OF  MIDDLEMEN 
78.     A  Condemnation  of  Forestallers*^ 

Especially  be  it  commanded  on  the  part  of  our  lord  the  king,  that 
no  forestaller  be  suffered  to  dwell  in  any  town, — a  man  who  is 
openly  an  oppressor  of  the  poor,  and  the  public  enemy  of  the  whole 
community  and  country;  a  man  who,  seeking  his  own  evil  gain, 
oppressing  the  poor  and  deceiving  the  rich,  goes  to  meet  com,  fish, 
herrings,  or  other  articles  for  sale  as  they  are  being  brought  by 
land  or  water,  carries  them  off,  and  contrives  that  they  should  be 
sold  at  a  dearer  rate.  He  deceives  merchant  strangers  bringing 
merchandise  by  offering  to  sell  their  wares  for  them,  and  telling 
them  that  they  might  be  dearer  sold  than  the  merchants  expected; 
and  so  by  craft  and  subtlety  he  deceives  his  town  and  his  country. 
He  that  is  convict  thereof,  the  first  time  shall  be  amerced  and  lose 
the  things  so  bought,  and  that  according  to  the  custom  and  ordi- 
nance of  the  town ;  he  that  is  convict  the  second  time  shall  have  judg- 
ment of  the  pillory;  at  the  third  time  he  shall  be  imprisoned  and 
make  fine;  the  fourth  time  he  shall  abjure  the  town.  And  this 
judgment  shall  be  given  upon  all  manner  of  forestallers,  and  like- 
wise upon  those  that  have  given  them  counsel,  help,  or  favor. 

79.    If  Forestallers  Had  Their  Deserts" 

BY  GEORGE  WASHINGTON 

It  ^ves  me  great  pleasure  to  find  that  there  is  likely  to  be  a 
coalition  of  the  Whigs  in  your  State,  and  that  the  Assembly  of  it 
are  so  well  disposed  to  second  your  endeavors  in  bringing  those 
murderers  of  our  cause,  the  monopolizers,  forestallers,  and  engross- 
ers, to  condign  punishment.  It  is  much  to  be  lamented  that  each 
State  long  ere  this  has  not  hunted  them  down  as  the  pests  of  society, 
and  the  greatest  enemies  we  have  to  the  happiness  of  America.  I 
would  to  God,  that  one  of  the  most  atrocious  in  each  State  was  hung 
in  gibbets  upon  a  gallows  five  times  as  high  as  the  one  prepared  by 
Haman.  No  punishment,  in  my  opinion,  is  too  great  for  the  man 
who  can  build  his  greatness  upon  the  country's  ruin. 

^'Adapted  from  Statutes  of  the  Realm,  I,  202  (about  1269). 

^*From  a. letter  to  Joseph  Reed,  dated  December  12,  1778,  in  The  IVritings 
of  George  JVashington,  VII,  282.     Edited  by  Worthington  Chauncey  Ford. 


I62  CURRENT  ECONOMIC  PROBLEMS 

80.     The  Function  of  the  Middleman^* 

BY  HARTLEY  WITHERS 

Anything  that  has  been  grown  or  made  usually  has  to  go  a  long 
way  and  pass  through  many  hands  before  it  comes  into  the  possession 
of  the  man  who  finally  eats  it  or  wears  it  or  otherwise  consumes  it. 
And  every  pair  of  hands  through  which  it  passes  takes  toll  of  it,  that 
is  to  say,  adds  something  to  the  price  that  the  final  consumer  pays, 
or  takes  something  off  the  profit  that  goes  to  the  shareholders  in  the 
producing  company,  or  off  the  wages  that  can  be  paid  to  the  workers 
who  made  it. 

Most  of  these  intermediaries  are  necessary.  It  is  easy  to  talk  of 
doing  away  with  the  middleman,  but  when  he  is  done  away  with  he 
usually  comes  to  life  again  in  another  form  or  under  another  name. 
The  most  clearly  necessary  intermediary  is  the  transporter.  There 
is  also  at  least  one  merchant,  a  broker  or  two,  and  the  shopkeeper 
who  finally  makes  the  retail  sale  to  the  consumer.  Furthermore 
there  is  another  chain  of  people  who  are  just  as  essential  as  the 
transporters — namely  the  bankers,  financiers,  and  bill-brokers,  who 
find  the  credit  and  provide  the  currency  to  finance  the  movement  of 
the  stuff  from  place  to  place,  and  see  to  the  consequent  transfers  of 
cash  or  credit. 

Now  we  begin  to  see  the  reason  for  the  difference,  so  startling  at 
first  sight,  between,  for  example,  the  coal  that  is  sold  at  the  pit- 
mouth  for  10s.  to  I2s.  a  ton,  and  costs  us  in  London  anything  up  to 
30J.  It  occurs  at  once  to  all  amateur  economists  that  it  would  be  an 
enormous  saving  if  we  could  do  away  with  all  these  middlemen  and 
divide  their  gains  between  the  producer,  his  workers,  and  the  con- 
sumer. Why  should  not  the  consumer  buy  his  coal  at  the  pit-mouth  ? 
So  he  could  if  he  were  there  to  arrange  for  its  carriage,  and,  further, 
if  he  were  prepared  to  buy  a  good  round  mouth-filling  amount,  not 
homeopathic  doses  of  a  ton  or  two  at  a  time.  Also  he  would  only 
buy  on  the  alluringly  cheap  terms  one  sees  quoted  in  the  papers  if 
he  contracted  to  take  large  quantities  at  regularly  recurring  intervals, 
so  that  the  colliery  company  could  be  sure  of  disposing  of  its  output. 
Further,  he  would  have  to  pay  for  the  carriage  of  the  coal,  and  by 
the  time  he  had  done  so  he  would  find  that  there  was  a  very, big  hole 
in  the  saving  he  thought  he  was  going  to  effect  by  dealing  direct  with 
the  producer. 

Now,  as  the  ordinary  consumer  could  not  possibly  buy  on  the 
scale  required  unless  he  had  a  large  amount  of  capital  to  sink  in 

"Adapted  from  Poverty  and  Waste,  115-118.  Published  by  E.  P.  Dutton 
&  Co.     (1914.) 


PECUNIARY  ORGANIZATION  163 

coal  and  a  large  area  of  space  in  which  to  store  it,  and  as  he  would 
also  have  to  run  the  risk  of  its  deterioration  before  he  could  use  it, 
he  would  at  once  have  brought  home  to  him  three  services  which  are 
performed  for  him  by  middlemen,  and  would  have  to  be  performed 
by  him  or  somebody,  as  soon  as  he  did  away  with  the.  middleman. 
These  services  are :  ( i )  wholesale  purchase  and  retail  selling — the 
fact  that  the  merchant  is  prepared  to  take  away  the  coal  in  big  blocks 
and  store  it  and  sell  it  piecemeal  to  suit  our  convenience;  (2)  the 
provision  of  capital  to  bridge  the  gap  in  time  between  purchase  and 
sale;  (3)  the  taking  of  the  risks  of  deterioration  in  quality  if  the  coal 
is  not  sold  fast  enough,  and  of  a  spell  of  warm  weather  which  may 
knock  a  shilling  or  two  off  the  price  before  it  is  sold. 

These  services  would  have  to  be  paid  for  even  if  we  reorganized 
society  on  a  socialistic  basis. 

81.     Middlemen  in  the  Produce  Trade 

BY  EDWIN  G.  NOURSE 

It  is  quite  the  fashion  to  impute  to  "middlemen"  sole  responsi- 
bility for  the  increases  in  prices  which  have  recently  occurred,  and 
which  together  constitute  what  is  usually  referred  to  as  "the  high 
cost  of  living."  In  the  words  of  the  Massachusetts  Commission  on 
the  Cost  of  Living,  "A  long  line  of  commission  men,  produce  mer- 
chants, jobbers,  hucksters,  retailers,  and  what-nots,  simply  passing 
goods  from  hand  to  hand  like  a  bucket  brigade  at  a  fire,  is  not  only 
inefficient  and  wasteful,  but  very  costly.  In  these  days  a  hydrant  and 
a  line  of  hose  are  wanted." 

This  is  undoubtedly  a  vivid  statement  of  the  case,  but  like  most 
figures  of  speech,  leaves  something  to  be  desired  in  the  way  of 
accurate  analysis.  It  is  certainly  not  more  than  a  half-truth  to 
speak  of  middlemen  as  "simply  passing  goods  from  hand  to  hand." 
The  middleman  performs  four  distinct  functions,  whose  value  to 
both  producers  and  consumers  should  not  be  overlooked. 

In  the  first  place,  the  middleman  provides  a  market.  He  organ- 
izes the  demand  for  all  the  various  sorts  of  produce  and  brings  it 
into  effective  touch  with  the  producer,  who  is  commonly  in  no  posi- 
tion to  find  it  for  himself.  The  latter's  farm  or  orchard  is  located 
with  reference  to  advantages  for  production,  and  therefore  far  away 
from  the  markets  in  which  he  must  sell  his  product.  His  abilities 
are  too  specialized  in  the  direction  of  agricultural  proficiency  to  give 
him  the  necessary  commercial  expertness.  The  time  of  harvesting 
the  crop  is  generally  the  busiest  season  of  the  year,  leaving  the 
grower  little  time  to  devote  to  the  intricate  details  of  marketing  his 


i64  CURRENT  ECONOMIC  PROBLEMS 

product.  Finally,  there  are  comparatively  few  producers  who  have 
a  sufficient  volume  of  goods  to  enable  them  to  ship  in  carload  units, 
and  yet  they  must  move  in  such  quantities,  if  they  are  to  get  to 
market  at  all, 

A  kindred  function  is  that  of  "equalization."  Supplies,  on  the 
one  hand,  are  more  or  less  unreliable,  fluctuating  in  quantity  and 
quality  according  to  the  caprice  of  weather,  pests,  floods,  and  human 
nature;  and  demand,  on  the  other  hand,  is  no  less  arbitrary,  spas- 
modic, and  wayward.  But  if  some  central  agency  gathers  these  sup- 
plies together,  classifies  them  into  lots  of  appropriate  size,  and  directs 
them  into  channels  where  demand  is  at  the  moment  most  keen,  all 
parties  are  benefited.  A  large  part  of  consumers'  wants  cannot  be 
put  in  the  form  of  definite  orders  some  time  ahead  and  only  a  small 
portion  of  supplies  can  be  definitely  promised  in  advance.  Accord- 
ingly a  clearing-house  is  needed,  where  current  supplies  can  be  offset 
against  the  day's  demand. 

This  consideration  looks  over  into  the  second  division,  namely, 
the  middleman's  service  to  the  consumer.  To  only  a  small  extent 
is  the  modern  consumer  able  to  connect  himself  directly  with  sources 
of  supply.  He  possesses  neither  the  facilities  nor  the  knowledge. 
His  elaborate  market-basket  is  filled  from  all  over  the  world,  from 
places  he  wots  not  of,  and  yet  is  replenished  daily  from  stocks  which 
have  been  brought  within  his  daily  reach.  Commercial  agencies  of 
supply  are  scouring  the  world  for  better  goods  and  constantly  seek- 
ing better  means  of  bringing  them  to  the  place  of  use  and  keeping 
them  in  the  best  condition  until  the  time  of  use. 

Alongside  of  these  commercial  activities  of  the  produce  dealer  is 
a  third  class  of  service  which  may  be  called  "technical" — the  actual 
handling  of  the  goods,  storage,'  repacking  and  regrading,  culling, 
sorting,  and  fitting  to  meet  needs  or  whims  of  the  buying  public.  It 
is  the  oft-repeated  comment  of  the  dealers  that  most  people  buy, 
not  according  to  reason,  but  according  to  their  prejudices ;  not  to  get 
nourishment,  or  flavor,  or  real  excellence,  but  to  please  the  eye.  The 
extra  labor  and  material  thus  necessarily  piles  up  extra  costs. 

Storage  is  partly  a  technical  service,  but  it  is  charged  for  on  a 
time  basis  and  so  comes  also  under  the  head  of  financing  services. 
This  fourth  class  of  the  middleman's  services  is  of  great  importance 
and  yet  is  entirely  overlooked  by  those  who  regard  him  as  engaged 
in  merely  passing  goods  from  hand  to  hand.  When  the  householder 
buys  his  apples  or  potatoes  only  as  he  needs  them,  and  pays  for  them 
only  at  the  end  of  the  month,  after  they  have  been  consumed,  he 
should  not  forget  that  someone  has  financed  that  portion  of  his 
living  expenses.    But  the  dealer  goes  farther  back  and  finances  the 


PECUNIARY  ORGANIZATION  165 

transportation  and  perhaps  the  growing  of  the  crop.  This  service 
doubly  benefits  the  producer,  because  without  it  producers  would  be 
crippled,  supplies  curtailed,  and  prices  advanced.  This  is  not  to  say 
that  producers  may  not  in  time  arrange  to  finance  their  own  opera- 
tions, but  so  long  as  the  middleman  is  called  upon  to  do  it,  he  is 
undoubtedly  performing  a  service,  which  should  not  be  overlooked 
when  we  are  balancing  his  account  with  the  public. 

E.     SPECULATION 
82,     The  Gamble  of  Life" 

BY  JOHN   W.  GATES 

Life  is  a  gamble.  Everything  is  a  gamble.  When  the  farmer 
plants  his'^  com  he  is  gambling.  He  bets  that  the  weather  conditions 
will  enable  him  to  raise  a  good  crop.  Sometimes  he  loses,  sometimes 
he  wins.  Every  man  who  goes  into  business  gambles.  Of  course 
the  element  of  judgment  enters  in,  but  the  element  of  chance  cannot 
be  ruled  out.  Whenever  a  man  starts  on  a  railroad  journey,  it's  2. 
gamble  whether  he  ever  reaches  his  destination.  All  life  is  a  gamble, 
you  see. 

83.     The  Twilight  Zone" 

BY   HARRY  J.    HOWLAND 

The  Stock  Exchange  provides  facilities  which  are  used  for  three 
kinds  of  transactions — investment,  speculation,  and  gambling.  If 
the  transactions  on  the  floor  belonged  wholly  to  the  first  class,  the 
Exchange  would  be  unqualifiedly  good.  If  they  belonged  wholly  to 
the  last  class,  it  would  be  unqualifiedly  bad.  It  is  the  middle  term  of 
this  trio  which  falls  on  debatable  ground.  Investment  needs  no 
defense;  no  defense  will  save  gambling  from  condemnation.  But 
speculation  is  in  a  very  different  case  from  either.  Speculation  is  a 
dog  with  a  bad  name.  It  is  possible  to  gibbet  it  along  with  gambling 
and  loose  living. 

But  is  the  verdict  just?  Is  speculation  an  unsocial  practice?  Is 
the  speculator,  like  the  gambler,  an  enemy  of  society,  a  drone  in  the 
hive,  contributing  nothing  to  the  general  welfare?  It  is  a  convincing 
answer  to  this  question  that^we  seek.      "^ 

"Quoted  in  Current  Literature,  LXI,  266  (1910?). 

"Adapted  from  "Speculation  and  Gambling,"  in  The  Independent, 
LXXVI,  IS-17.     Copyright  (1913). 


i66  CURRENT  ECONOMIC  PROBLEMS 

The  three  processes  which  go  on  upon  the  floor  of  the  Stock 
Exchange — investment,  speculation,  and  gambling — are  often  inex- 
tricably mixed.  It  is  often  practically  impossible  to  assign  any  par- 
ticular operation  without  question  to  one  of  these  three  classes. 

Investment,  for  instance,  is  sometimes  semi-speculative  in  char- 
acter. Here  is  a  man  who  has  saved  a  thousand  dollars  and  wishes 
to  lay  it  aside  against  a  future  need.  There  are  many  ways  in  which 
he  may  invest  it  on  the  Stock  Exchange.  He  may  buy  government 
bonds  with  it.  But  in  this  case  there  is  no  chance  that  his  principal 
will  be  increased  to  any  degree  when  he  comes  to  sell  his  bonds. 
This  is  pure  investment. 

Or  he  may  purchase  a  stock  which,  while  it  pays  a  good  rate  of 
dividend  with  regularity,  is  subject  to  fluctuations  in  price.  Here  he 
has  a  paying  investment  with  the  possibility  of  an  increase  in  prin- 
cipal when  he  sells  out.  The  stock  may  turn  out,  not  only  a  good 
investment,  but  a  good  speculation. 

Or  he  may  buy  a  stock  which  at  present  is  paying  no  dividend  at 
all,  but  which  is  selling  at  an  extraordinarily  low  price.  The  value 
of  the  stock  is  all  potential.  The  element  of  investment  is  totally 
absent  from  such  a  purchase.  So  investment  and  speculation  are 
inextricably  mixed  in  all  kinds  of  operations  on  the  Stock  Exchange. 
In  some,  investment  predominates;  in  some,  speculation.  In  many 
the  mixture  is  of  nearly  equal  parts. 

Again,  the  line  between  speculation  and  gambling  on  the  Stock 
Exchange  is  hazy  and  indistinct.  There  the  twilight  zone  is  broad 
and  clouded.  This  is  not  because  any  of  the  operations  on  the  Ex- 
change are  in  form  or  in  essence  gambling  operations,  as  betting  on 
a  horse  race  or  playing  poker.  The  truth  is  that  Stock  Exchange 
speculation  is  not  gambling,  but  it  leads  to  many  of  the  same  evils 
to  which  gambling  leads.  This  statement  opens  up  highly  debatable 
ground.  Probably  the  most  common  view  is  that  stock  speculation 
might  more  properly  be  called  stock  gambling,  that  speculating  on 
the  price  fluctuations  of  stocks  is  no  different  from  gambling  on  the 
fall  of  cards  or  the  gyrations  of  the  roulette  ball.  But  there  are  two 
essential  differences,  while  at  the  same  time  there  is  one  essential 
likeness. 

Speculation  differs  from  gambling  in  process.  In  a  gambling 
transaction  if  one  party  wins,  the  other  party  must  lose.  In  specu- 
lative transactions  it  is  rvf  more  nece^ary  for  one  party  to  lose  if 
the  other  party  wins  than  it  is  in  speculative  purchase  of  land  or 
potatoes  or  eggs.  The  transactions  of  the  Stock  Exchange  are  sales 
and  purchases,  bona  fide,  actual,  complete.  In  each  transaction  each 
party  to  it  gives  what  he  wants  less  for  what  he  wants  more.    The 


PECUNIARY  ORGANIZATION  167 

judgment  of  either  or  both  may  be  bad.  But  it  is  no  less  a  real 
bargain,  in  which  each  side  gets  vaUie  received  for  what  he  gives. 
GambUng,  on  the  contrary,  does  not  involve  an  exchange  of  values. 
It  is  a  contribution  of  values  to  a  central  fund,  the  ultimate  owner- 
ship of  the  fund  to  be  determined  by  chance.  True,  in  gambling  each 
contributor  receives  a  chance  of  receiving  all  the  contributions;  but 
he  also  runs  a  risk  of  losing  his  whole  contribution.  Thus  the  specu- 
lator receives  a  value  in  return  for  his  stake,  while  the  gambler  does 
not.  For  the  former  it  may  not  be  the  value  that  he  thinks  he  is 
getting,  and  the  value  actually  received  may  decline.  But  that  is  true 
of  everybody  who  buys  a  commodity  with  a  view  to  its  increase  in 
value,  from  raspberries  to  skyscrapers.  The  fact  that  a  man's  judg- 
ment as  to  future  values  may  prove  unsound  does  not  throw  him 
into  the  class  of  gamblers. 

Nor  does  the  fact  that  speculation  on  the  Stock  Exchange  is 
largely  carried  on  through  tradings  on  margins  and  short-selling 
make  it  gambling.  Both  processes  are  common  under  other  names 
throughout  the  commercial  world.  Trading  on  margin  is  buying 
stock,  and  making  only  a  small  cash  payment  at  the  time  of  purchase. 
It  differs  in  no  essential  particular  from  buying  furniture  on  the 
instalment  plan,  from  buying  land  on  mortgage,  and  from  buying 
books  by  subscription.  It  merely  involves  the  use  of  personal  credit 
backed  by  security. 

Short-selling  is  selling  securities  which  one  does  not  possess  at 
the  moment  in  the  expectation  and  belief  that  they  will  go  down  in 
price.  This  action  is  no  more  gambling  than  that  of  an  automobile 
manufacturer  in  contracting  to  sell  an  automobile  before  he  has  in 
his  possession  any  of  the  materials  out  of  which  it  is  to  be  made  is 
gambling. 

Speculation  and  gambling,  again,  differ  widely  in  the  service 
which  they  render  to  the  community.  Gambling  renders  none.  The 
gambler  is  a  drone  in  an  economic  hive,  a  parasite  in  the  industrial 
organism.  Speculation  renders  a  real,  a  valuable,  and  indeed  an 
indispensable  service.  The  Stock  Exchange  brings  the  investor  and 
the  enterprise  together.  It  directs  capital  into  channels  of  invest- 
ment which  the  owners  of  the  capital  would  never  have  been  able 
to  find  for  themselves.  The  speculator  performs  an  important  func- 
tion for  the  investor  by  forecasting  the  future.  Speculation  is  the 
struggle  of  intelligence,  armed  with  a  knowledge  of  the  ascertainable 
conditions,  against  the  blind  workings  of  chance. 

The  essential  likeness  between  gambling  and  speculation  lies  in 
the  fact  that  both  are  attractive  to  those  who  have  no  business  to 
indulge  in  them.  Men  will  gamble  who  cannot  afford  to  gamble,  who 
have  no  skill  at  the  game  they  seek  to  play.    So,  too,  men  will  enter 


i68  CURRENT  ECONOMIC  PROBLEMS 

into  speculation  lacking  adequate  resources,  adequate  knowledge,  and 
adequate  judgment.  For  just  as  gambling  is  attractive  because  it 
holds  out  glittering  hopes  of  making  money  without  labor,  so  specu- 
lation is  attractive  because  the  prizes  for  the  successful  are  out  of 
all  proportion  to  the  effort  expended  or  to  the  stake  put  up. 

The  main  evil  which  accompanies  speculation  lies  in  this  par- 
ticipation in  it  of  the  unfit.  It  is  not  speculation  in  itself  that  is  an 
evil,  but  the  improper  and  unwise  use  of  the  speculative  faculties  by 
the  ignorant  and  the  unskilled,  the  insufficiently  provided,  the  weak 
in  judgment. 

84.    The  Ethics  of  Speculation" 

What  is  speculation?  And  how  does  it  differ  from  legitimate 
business  ?  A  miller  knows  in  the  fall  that  next  summer  he  will  need  a 
million  bushels  of  wheat.  He  studies  the  wheat  conditions  through- 
out the  world,  forms  the  best  judgment  he  can  as  to  the  probable 
supply  and  demand,  and  the  prospective  market  price,  then  sends 
out  an  agent  to  contract  with  the  farmers  to  give  him  next  summer 
the  wheat  he  will  need  at  the  price  he  is  willing  to  pay.  This  is  a 
legitimate  business  transaction,  advantageous  to  both  miller  and 
farmer.  The  fact  that  the  miller  may  miscalculate,  and  as  a  result 
make  an  unexpected  profit  or  suffer  an  unexpected  loss  does  not 
make  the  transaction  a  speculation. 

A  broker,  who  has  no  mill  and  has  no  use  for  any  wheat,  makes  a 
similar  calculation;  he  sends  out  his  agent,  buys  in  the  fall  of  the 
farmers  at  an  agreed  price  to  be  paid  on  delivery  the  next  summer, 
expecting  to  sell  the  wheat  in  turn  to  the  millers.  This  may  be  a 
legitimate  business  transaction.  It  is  advantageous  to  farmer  and 
miller.  And  in  modern  complicated  business  the  service  of  the 
broker  is  often  indispensable. 

A  speculator  makes  a  somewhat  similar  investigation  of  probable 
demand  and  supply.  He  knows  what  the  average  crop  for  the  last 
five  years  has  been.  He  knows  that  there  is  an  iscreasing  demand 
for  wheat  as  a  food  product  all  over  the  world.  He  gets  together 
some  cash  and  more  credit,  and  plans  to  buy  up  the  whole  wheat 
supply  in  the  United  States ;  if  necessary,  the  whole  wheat  supply  of 
America.  If  he  can  succeed  in  doing  this,  he  will  have  a  monopoly, 
and  can  indefinitely  increase  the  price.  This  is  not  quite  so  impos- 
sible as  it  may  seem  at  first  sight.  He  does  not  have  to  buy  all  the 
wheat ;  if  he  owns  most  of  it,  he  can  trust  the  owners  of  the  rest  not 
greatly  to  undersell  him,  and  thus  can  largely  determine  the  market 

"Adapted  from  an  editorial  in  The  Outlook,  XCII,  14-16.  Copyright 
(1909). 


PECUNIARY  ORGANIZATION  169 

price.  He  does  not  have  to  maintain  the  highest  price  for  any  great 
length  of  time;  he  has  only  to  keep  up  his  price  until  the  date  at 
which  he  has  agreed  to  sell,  and  can  often  sell  part  before  that  time 
at  a  price  sufficient  to  guard  himself  against  loss.  He  does  not  have 
to  pay  cash  for  his  wheat.  He  has  only  to  contract  to  pay  at  a 
future  day,  and  meantime,  to  raise  money  enough,  called  a  margin, 
to  save  from  loss  the  man  of  whom  he  is  buying  it,  in  case  the  price 
declines  below  the  amount  which  he  has  agreed  to  pay  for  it. 

But  the  speculator  is  not  alone.  Others  are  associated  with  him 
in  his  endeavor  to  obtain  control  of  the  wheat  in  the  United  States. 
There  are  also  speculators  who  believe  that  this  attempt  will  fail; 
and  who  are  leagued  together  to  make  it  fail.  The  former,  in  the 
jargon  of  the  market,  are  called  bulls;  the  latter  are  called  bears. 
The  bears  agree  to  sell  wheat  on  the  first  of  May  at  a  fixed  price; 
the  bulls  agree  to  buy  the  wheat  at  that  price.  The  bulls  attempt  to 
make  the  market  price  on  the  first  of  May  as  high  as  possible;  the 
bears  attempt  to  make  it  as  low  as  possible.  But  the  bears  have  no 
wheat  to  sell  and  do  not  expect  to  have  any;  and  the  bulls  do  not 
want  any  wheat  and  do  not  expect  to  buy  any. 

What  actually  happens  is  this :  Mr.  Bear  agrees  to  sell,  and  Mr. 
Bull  agrees  to  buy,  a  thousand  bushels  of  wheat  on  the  first  of  May 
at  one  dollar  per  bushel.  But  on  the  first  of  May  the  market  price 
of  wheat  is  $1.10  a  bushel.  Mr.  Bear,  therefore,  would  have  to 
spend  $i,icx)  to  buy  the  thousand  bushels  of  wheat  which  he  had 
agreed  to  sell  to  Mr.  Bull  for  $1,000.  Instead  of  doing  so,  he  pays 
Mr.  Bull  $100.  If,  on  the  other  hand,  the  price  of  wheat  has  fallen 
to  ninety  cents  per  bushel,  Mr.  Bear  can  buy  for  $900  the  wheat  for 
which  Mr.  Bull  has  agreed  to  pay  him  $1,000.  In  that  case  Mr.  Bull 
pays  Mr.  Bear  $100.  * 

No  wheat  is  actually  bought  and  sold ;  no  wheat  passes  from  one 
to  the  other.  Under  guise  of  the  contract  to  buy  and  sell,  these  two 
men,  Mr.  Bull  and  Mr.  Bear,  have  simply  made  a  bet  as  to  the  price 
of  wheat  on  the  first  of  May.  The  amount  of  the  bet  to  be  paid 
depends  upon  the  difference  between  the  actual  market  price  on  the 
first  of  May  and  the  stipulated  dollar  a  bushel. 

If  the  reader  asks.  How  can  a  bet  between  two  dealers  affect  the 
price  of  wheat?  The  answer  is,  It  cannot.  But  when  hundreds  of 
men  are  excitedly  offering  to  buy  wheat  and  other  hundreds  to  sell 
wheat,  and  these  offers  to  buy  and  sell  include  millions  of  bushels 
that  have  no  existence,  and  the  bets  upon  the  price  of  wheat  reach 
millions  of  dollars,  the  result  is  to  create  an  artificial  demand  and  an 
equally  artificial  supply,  which  determine  the  market  price  of  such 
wheat  as  is  stored  in  the  warehouses. 


I70       ■  CURRENT  ECONOMIC  PROBLEMS 

The  transaction  is  of  no  benefit  to  anyone  except  the  successful 
gambler.  It  does  not  benefit  the  farmers ;  for  they  are  interested  in 
having  a  steady  price  for  their  wheat,  not  a  fluctuating  price,  which 
promises  a  great  gain  today  and  a  serious  loss  tomorrow,  and  com- 
pels them  to  study  the  gambler's  market  if  they  would  get  a  benefit 
of  the  prices,  a  study  for  which  they  have  neither  the  time  nor  the 
facility.  It  does  not  benefit  the  millers,  who  might  judge  what  the 
prices  of  next  season's  wheat  will  be,  if  it  were  dependent  on  supply 
and  demand  as  regulated  by  natural  causes,  but  cannot  judge  if  it  is 
made  dependent  on  the  tricks  and  chances  of  a  great  gambling  opera- 
tion. 

Gambling  with  breadstuiTs  is  a  great  deal  worse  than  gambling  with 
cards  or  dice;  the  gambling  carried  on  on  the  Produce  Exchange, 
than  that  carried  on  in  the  gambling  hells  of  New  York  City  or  in  the 
Casino  at  Monte  Carlo.  Private  gambling  injures  only  the  gam- 
blers and  those  immediately  connected  with  them,  and  it  demoralizes 
the  few  hundreds  of  occasional  onlookers.  The  private  gambler  gets 
the  money  of  his  fellow-gambler  for  nothing,  and,  if  the  game  is 
honestly  played,  gives  his  fellow-gamblers  in  return  a  chance  to  get 
his  own  money  for  nothing.  But  the  public  gamblers  play  their  game 
with  the  property  of  their  wholly  innocent  fellow-citizens.  1'hey 
gamble  with  the  wheat-fields  of  the  farmer,  the  flour-barrels  of  the 
miller,  the  bread  loaves  of  the  baker  and  the  housekeeper.  There 
is  not  a  reader  of  these  lines  in  America  but  may  have  suffered  some 
injury  from  the  gamblers  in  the  Chicago  wheat-market;  and  the 
whole  country  looks  on  at  the  gigantic  game,  and  hundreds  of  thou- 
sands of  fascinated  spectators  are  demoralized  by  the  spectacle. 
These  gamblers  are  not  robbers,  for  they  are  not  taking  our  property 
by  violence,  but  they  are  staking  it  without  our  consent  and  without 
giving  us  any  return  for  it. 

85.    The  Utility  of  Cotton  Futures" 

BY  ALFRED  B.  SHEPPURSON 

The  opinion  held  by  many  that  the  transactions  in  "futures"  are 
almost  entirely  for  speculation  is  very  erroneous.  The  buying  and 
selling  of  cotton  "futures"  is  absolutely  essential  to  the  successful 
prosecution  of  the  business  of  cotton  manufacturers  and  cotton 
dealers  as  at  present  conducted. 

*•  Adapted  from  a  pamphlet  entitled  An  Exposition  of  the  Methods  of 
Business  in  Cotton  Futures  as  Conducted  in  the  New  York,  New  Orleans, 
and  Liverpool  Markets.  Published  by  Hubbard  Brothers  &  Co.,  New  York 
(1907). 


PECUNIARY  ORGANIZATION  171 

Many  cotton  mills  now  sell  their  product  of  yams  and  cloth  for 
delivery  many  months  in  the  future.  To  do  this  they  must  know  the 
cost  of  cotton  for  months  before  it  is  manufactured.  Unless  the 
market  for  cotton  "futures"  avail,  the  only  way  to  do  this  is  to  buy 
the  actual  cotton  at  the  time  the  sale  of  yams  or  cloth  for  future 
delivery  is  made.  This  would  involve  a  large  outlay  of  capital  with 
the  loss  of  interest  on  it,  besides  the  expense  of  storage  and  insur- 
ance and  loss  of  weight  in  the  cotton. 

Under  the  present  methods,  the  cotton  manufacturer  can  safely 
sell  the  product  of  his  mills  for  delivery  far  into  the  future  by  buying 
"futures"  to  the  extent  of  the  raw  material  required,  and  then  pur- 
chase the  actual  cotton  as  it  is  needed  for  manufacturing,  and  selling 
out  his  "futures"  as  he  buys  cotton  of  the  quality  to  meet  his  require- 
ments. If  the  price  of  cotton  advances  between  the  time  of  his  pur- 
chase of  "futures"  and  the  date  on  which  he  buys  the  actual  cotton, 
he  will  make  a  profit  on  the  transaction  in  "futures"  sufficient  to 
make  good  the  difference.  If  the  price  of  cotton  falls  he  will  make 
enough  on  the  actual  cotton  bought  to  cover  the  losses  on  his  "fu- 
tures." Thus,  but  for  the  facilities  offered  for  buying  "futures"  in 
the  manner  indicated,  the  cotton  manufacturer,  who  possesses  only 
moderate  capital,  would  be  unable  to  sell  his  product  except  for  quick 
delivery,  without  taking  great  risks  of  loss  by  an  advance  in  the  price 
of  the  raw  material. 


86.     Hedging  on  the  Wheat  Market" 

BY  ALBERT  C.  STEPHENS 

A  Glasgow  miller,  in  February,  desires  to  purchase  100,000  bush- 
els of  California  wheat  to  grind  into  flour.  The  price  has  been  tend- 
ing upward.  He  purchases  this  wheat,  engages  freight  room,  and 
arranges  to  have  it  shipped  to  Glasgow.  The  price  and  freight  will 
make  the  wheat  cost  him  in  Glasgow  about  $1.07  per  bushel.  But 
the  wheat  will  not  arrive  until  September  or  October,  five  months 
away.  By  that  time,  following  the  Atlantic  coast  harvests,  and  with 
the  then  probable  renewal  of  arrivals  of  Russian  and  Indian  wheat, 
the  Glasgow  price  might  or  might  not  be  lower  than  $1.07.  In  order 
to  insure  himself  against  loss,  the  Glasgow  miller  sells  100,000 
bushels  of  wheat  for  October  delivery  at  New  York.  The  California 
wheat  arrives  at  Glasgow,  but  the  price  of  wheat  the  world  over  has 
declined,  and  the  miller  finds  that  it  has  cost  him  two  or  three  cents 

"Adapted  from  "Futures  in  the  Wheat  Market,"  in  the  Quarterly 
Journal  of  Economics,  II,  47-5^   (1887). 


172  CURRENT  ECONOMIC  PROBLEMS 

a  bushel  more  than  the  then  ruHng  price.  Under  strictly  old-fash- 
ioned methods,  had  he  not  sold  100,000  bushels  of  wheat  at  New 
York,  he  would  find  himself  at  a  decided  disadvantage  in  competi- 
tion with  millers  who  had  not  anticipated  their  wants  as  he  had. 
But  he  is  not  so  placed.  When  he  found  the  market  a  few  cents 
lower,  he  cabled  an  order  to  New  York  to  buy  100,000  bushels  for 
October  delivery.  At  the  maturity  of  his  New  York  speculative  con- 
tracts, he  finds  a  profit  about  equal  to  the  loss  on  his  California 
transaction.  Thus,  owing  to  his  protective  future  contract,  he  stands 
no  loss,  despite  the  drop  in  the  price  of  wheat.  Had  he  found  a 
profit  on  his  California  wheat  when  it  arrived — that  is,  had  the  price 
advanced  after  the  grain  left  San  Francisco — he  would  have  covered 
his  New  York  sale  at  a  corresponding  loss,  thus  leaving  him  situated 
as  before.  In  this  way,  English  millers  and  importers  of  wheat, 
buying  in  the  United  States,  Russia,  or  elsewhere,  habitually  protect 
such  purchases  from  fluctuations  in  prices,  while  in  transit,  by  selling 
futures  against  them  at  New  York  or  Chicago,  and  later  by  covering 
their  contracts.  When  we  consider  the  aggregate  of  wheat  purchases 
made  in  this  country,  and  remember  that  all  of  these  sales  are  in 
time  covered  by  corresponding  purchases  of  wheat,  and  that  in  all 
cases  these  .speculative  sales  and  purchases  call  for  the  actual  delivery 
of  grain,  we  may  gain  some  conception  of  the  reasons  why  future 
sales  make  so  large  a  total. 

But  these  insuring  or  protecting  sales  and  purchases  are  by  no 
means  confined  to  foreigners,  who  buy  throughout  the  world  and 
ship  to  Europe.  One  may  also  find  ample  illustration  at  home.  A 
New  York  merchant  buys  100,000  bushels  of  hard  wheat  at  Duluth, 
and  orders  it  shipped  by  vessel  to  Buffalo,  to  go  thence  to  New  York 
by  canal.  He  does  this,  not  because  he  wants  the  wheat  for  his  own 
use,  but  because  he  believes  that,  in  view  of  known  or  apparent 
market  conditions,  he  will  be  able  to  sell  the  grain  in  New  York  at 
a  profit.  With  a  more  primitive  view,  he  would  ship  this  grain, 
wait  until  it  arrived,  look  for  a  purchaser,  and,  finding  one,  sell  the 
wheat  for  the  price  current  on  the  day  of  arrival — say,  three  weeks 
after  he  bought  it.  If  at  a  profit,  well  and  good ;  but  if  the  price  had 
declined,  he  would  sustain  a  heavy  loss,  owing  to  the  size  of  the 
shipment.  But,  nowadays,  the  New  York  merchant  sells  100,000 
bushels  of  spring  wheat,  September  delivery,  at  Chicago,  at  the  date 
of  his  Duluth  purchase  in  August.  When  the  wheat  reaches  Bufi^alo, 
the  price  has  advanced,  and  the  millers  there  want  part  of  his  con- 
signment. He  sells  them  25,000  bushels,  and  buys  25,000  bushels  of 
spring  wheat  at  Chicago,  September  delivery,  to  make  good  the 
original  quantity  purchased.  By  this  time  he  has  also  sold  at  New 
York    100,000  bushels,    September   delivery,   to   an   exporter,   an^ 


PECUNIARY  ORGANIZATION  173 

bought  100,000  bushels  more  at  Chicago,  rel)dng  on  the  75,000 
bushels  on  its  way  and  his  ability  to  get  25,000  bushels  more,  before 
it  is  demanded,  to  keep  his  engagement.  When  the  75,000  bushels 
hard  wheat  reach  New  York,  the  price  has  declined  fractionally ;  and 
the  owner  is  enabled,  in  consequence,  to  purchase  25,000  bushels  at 
a  slightly  better  price,  relatively,  than  he  paid  in  Duluth,  selling 
25,000  coincidentally  at  Chicago  for  September  delivery.  He  lost  on 
his  Duluth  purchase  and  on  the  25,000  and  100,000  bushel  purchases 
at  Chicago,  and  on  the  25,000  bushel  purchase  at  New  York.  But 
he  made  rather  more  than  corresponding  gains  through  his  sale,  spot 
delivery,  of  25,000  bushels  at  Buffalo,  including  profits  on  his  sales 
of  225,000  bushels  for  September  delivery  at  Chicago  and  New 
York,  so  that  he  gains  on  sales  of  250,000  bushels,  and  loses  on  the 
purchases  of  250,000  bushels.  The  transaction,  as  a  whole,  is  not 
very  profitable;  but  millers  at  home  and  abroad  get  wheat  at  the 
lowest  market  price  on  the  dates  of  purchase,  and  the  merchant 
whose  sagacity,  energy,  and  foresight  led  him  to  make  a  purchase, 
even  when  price  conditions  were  unfavorable,  is  able  to  protect 
himself  from  excessive  loss,  without  depressing  the  price  to  the 
original  holder,  and  without  having  an  incentive  unduly  to  advance 
the  price  to  the  consumer. 

87.    The  Ups  and  Downs  of  Securities'* 

BY  FRANCIS  W.  HIRST 

In  the  first  place  the  value  of  a  security  depends  mainly  upon  a 
quality  which  a  bale  of  cotton  or  a  ton  of  coal  does  not  possess.  It 
is  either  actually  or  potentially  interest-bearing.  This  quality  is  vis- 
ible in  a  bond  with  coupons  attached.  A  bond  like  that  bought  by 
subscribers  to  a  Prussian  state  loan  will  have  attached  to  it  quarterly 
or  half-yearly  coupons,  which  can  be  cashed  in  almost  any  great  cen- 
tre of  finance.  If  the  government  promises  to  redeem  the  bond  at 
the  end  of  a  definite  period  at  par,  at  its  maturity  the  bond  will  be 
worth  par.  In  the  meantime  it  will  rise  and  fall  according  to  the 
conditions,  first  of  German  credit,  secondly  of  the  international  rate 
of  interest.  But  these  tendencies  may  be  wholly  or  in  part  counter- 
acted by  antagonistic  movements  of  an  international  character,  for 
instance,  a  great  war  which  destroys  a  vast  amount  of  capital  and 
absorbs  vast  quantities  of  savings.  But  the  Prussian  bond  is  not 
likely  to  fluctuate  much,  and  the  limits  of  its  fluctuations  will  be  the 
more  restricted  the  more  nearly  it  approaches  its  maturity.     Thus 

'•.Adapted  from  The  Stock  Exchange,  199-210.    Copyright  by  Henry  Holt 
&  Co.   (iQii). 


174  CURRENT  ECONOMIC  PROBLEMS 

the  value  of  a  security  depends  mainly  upon  ( i )  the  rate  of  interest, 
(2)  the  safety  of  the  principal,  and  (3)  the  likelihood  of  the  princi- 
pal or  the  rate  of  interest  either  rising  or  falling.  These  are  the 
main  causes  of  a  rise  or  fall  in  securities. 

But  the  business  of  the  Stock  Exchange  operators  is  to  endeavor 
to  forecast  and  discount  in  advance  the  natural  fluctuations  of  in- 
trinsic value.  In  the  old  days  before  the  telegraph,  fortunes  were 
made  by  getting  early  information,  or  spreading  false  information 
of  victories  and  defeats,  which  would  enhance  or  depress  the  price 
of  stocks.  The  first  Rothschild  laid  the  foundations  of  his  immense 
fortune  by  getting  early  news  of  important  events.  Nowadays  the 
principle  is  still  the  same,  but  the  art  of  anticipation  has  been  made 
much  more  doubtful  and  complicated.  Telegraphs  and  telephones 
are  open  to  all.  What  everybody  reads  in  his  morning  paper  is  of 
no  particular  use  to  anybody  in  a  speculative  sense.  Besides,  many 
foreign  governments  keep  large  funds  in  London  and  Paris  for  the 
express  purpose  of  supporting  the  market.  Hence  in  the  market 
for  Government  bonds,  big  movements  are  rare. 

When  we  come  to  the  prices  of  railroad  and  industrial  stocks  the 
causes  of  movement  are  much  more  difficult  to  detect,  and  the  possi- 
bilities of  making  large  profits  by  inside  knowledge  is  much  greater. 
The  newspapers  may  be  the  conscious  or  unconscious  tools  of  the 
manipulators.  In  new  countries  the  banks  are  likely  to  be  a  working 
part  of  the  speculative  machinery.  Thus  in  the  United  States  those 
who  use  great  fortunes  in  finance  frequently  have  a  controlling  in- 
terest in  a  bank.  What  is  called  a  "community  of  interest"  may  be 
established  which  will  control  important  railroads  and  huge  indus- 
trial corporations,  as  well  as  a  number  of  banks  and  trust  com- 
panies. The  various  ways  in  which  such  a  community  may  manipu- 
late a  susceptible  market  like  Wall  Street  might  be  made  the  subject 
of  a  long  and  fascinating  volume. 

Suppose  that  a  powerful  group  wishes  to  create  the  appearance 
of  a  general  trade  depression  in  the  United  States.  To  do  so  is  not 
at  all  impossible.  The  controlled  railways  may  announce  and  even 
partially  carry  out  a  policy  of  reduced  orders  for  rails,  equipment, 
and  repairs.  They  may  ostentatiously  proclaim  an  addition  to  the 
number  of  idle  cars.  Well-disciplined  combinations  of  steel  and 
textile  mills  may  declare  a  curtailment  of  production.  Banks  may 
suddenly  become  ultra-conservative;  the  open  accounts  and  credits 
of  small  speculative  customers  may  be  closed.  In  this  way  a  general 
feeling  of  despondency  can  be  created.  Stocks  will  fall,  partly  in 
consequence  of  the  action  of  the  banks,  causing  a  compulsory  liqui- 
dation of  speculative  accounts,  partly  through  the  voluntary  action 


PECUNIARY  ORGANIZATION  175 

of  speculators  who  think  that  trade,  earnings,  profits,  and  dividends 
are  likely  to  decline.  Thus  a  bear  market  is  created.  The  syndi- 
cate can  now  employ  huge  funds  to  advantage  in  profitable  pur- 
chases of  those  stocks  and  shares  which  fall  most  and  are  most 
responsive  to  ups  and  downs.  Such  a  policy  of  course  represents 
great  difficulties  and  dangers.  It  must  be  carried  out  very  cautious- 
ly and  very  secretly,  and  very  honorably  as  between  the  members. 
And  if  it  is  too  successful  it  may  create  a  slump,  or  a  panic,  in  which 
the  community  of  interests  may  itself  be  seriously  involved.  For 
these  and  other  reasons  American  operators  and  manipulators  do 
not  frequently  enter  upon  a  concerted  plan  for  colossal  bear  opera- 
tions. Such  a  scheme  is  unpopular.  It  offends  public  sentiment. 
A  long  bearish  movement,  accompanied  by  unemployment,  reduced 
earnings,  and  economies  in  expenditure,  produce  all  manner  of  un- 
pleasant consequences,  economic,  social,  and  political.  In  fact  big 
men  often  boast  that  they  never  operate  upon  the  short  side,  never 
play  for  a  fall. 

Such  a  movement  as  that  sketched  above  is  comparatively  rare, 
cautious,  and  temporary.  Wall  Street  has  of  course  to  wait  upon 
circumstances.  Sometimes  it  is  caught  by  the  circumstances.  But 
it  must  always  try  to  adjust  itself  to  economic  and  political  condi- 
tions. A  political  assassination,  a  war,  a  movement  against  the 
trusts,  unfavorable  decisions  in  the  courts,  an  unexpected  downfall 
of  the  favourite  political  party,  a  catastrophe  like  the  San  Francisco 
earthquake — such  events  as  these  may  produce  an  irresistible  flood 
of  liquidation  against  which  the  strongest  combination  of  bankers 
and  corporation  men  will  struggle  in  vain.  In  a  general  scramble 
produced  by  some  unexpected  event  there  is  more  likely  to  be  a  gen- 
eral loss  than  a  general  profit.  For  in  the  history  of  speculation  the 
unexpected  event  is  usually  a  calamity. 

Real  prosperity  is  built  up  gradually.  The  Stock  Exchange  an- 
ticipates and  exaggerates  it,  until  the  speculative  fabric  has  been 
reared  so  high  above  the  real  foundation  that  a  crash  is  seen  to  be 
inevitable.  Generally  speaking,  because  of  superior  knowledge,  the 
insiders  are  able  to  unload  at  high  levels,  just  as  they  have  been  able 
to  load  at  low  levels.  So,  by  speculating  in  stocks  of  a  national  size 
and  significance,  the  outside  public  loses  more  than  it  gains.  It 
begins  to  buy  when  they  are  dear,  and  it  begins  to  sell  when  they 
are  cheap. 

For  purposes  of  scientific  analysis  we  may  rest  the  theory  of 
Stock  Exchange  quotations  upon  a  distinction  between  prices  and 
values.  Prices  are  temporary ;  values  are  intrinsic ;  they  move  slow- 
ly.    The  price  represents  the  momentary  market  value  of  a  stock 


176  CURRENT  ECONOMIC  PROBLEMS 

or  bond.  The  value  is  the.  real  worth,  a  thing  undefinable  and  im- 
possible to  ascertain.  If  the  real  value  were  ascertainable  and  avail- 
able to  the  public  then  price  and  value  would  be  identical,  and  in  the 
case  of  gilt-edge  securities,  the  two  are  as  nearly  as  possible  identi- 
cal. But  intrinsic  values  themselves  change  like  everything  else  in 
the  world.  They  depend  mainly  upon  (i)  the  rate  of  interest,  (2) 
the  margin  of  surplus  earning  power  or  revenue. 

Both  stocks  and  bonds  are  also  affected  in  their  intrinsic  value 
by  the  money  market  and  the  relationship  of  the  supply  of  capital 
seeking  investment  to  the  demand  for  capital  by  new  flotations.  The 
intrinsic  value  of  common  stock  depends  also  upon  the  actual  efifi- 
ciency  of  the  corporation,  the  condition  of  its  plant,  the  skill  of  its 
management,  and  the  contentment,  intelligence,  and  industry  of  its 
whole  staff. 

Of  course  all  these  changeful  elements  of  intrinsic  value  enter 
into  prices.  But  as  prices  sometimes  fluctuate  violently,  it  is  obvious 
that  they  must  also  be  aflfected  by  other  causes.  These  may  be 
summed  up  under  two  heads:  (i)  False  rumors,  which  have  got 
about  either  by  design  or  through  the  carelessness  or  mistakes  of 
newsmongers ;  and  (2)  Rigs,  pools,  combinations,  and  other  techni- 
cal devises,  by  which  the  market  is  either  flooded  with,  or  made  bare 
of,  a  particular  stock  or  group  of  stocks. 

88.    The  Functions  of  Exchanges** 

BY  CHARLES  A.   CONANT 

The  fundamental  function  of  the  exchanges  is  to  give  mobility 
to  capital.  Without  them  the  stocks  and  bonds  of  the  share  com- 
pany could  not  be  placed  to  advantage.  No  one  would  know  what 
their  value  was  on  a  given  day,  because  the  transactions  in  them 
would  be  private  and  unrecorded.  The  opportunities  for  fraud 
would  be  multiplied  a  hundred  fold.  The  mobility  for  capital  af- 
forded by  the  corporation  would  be  meager  and  inadequate  if  the 
holder  of  its  bonds  and  shares  did  not  know  that  at  any  moment 
he  could  take  them  to  the  exchanges  and  sell  them.  The  publicity 
prevailing  in  stock-exchange  quotations  gives  the  holder  of  a  security 
not  only  the  direct  benefit  of  publicity,  but  the  opinion  of  the  most 
competent  financiers  of  Europe  and  America.  If  they  were  dealing 
with  him  privately,  they  might  withhold  the  information.     But  the 

■^Adapted  from  Wall  Street  and  the  Country,  88-u6.  Copyright  by  the 
author  (1904). 


PECUNIARY  ORGANIZATION  177 

quoted  price  stands  as  a  guide  to  even  the  most  ignorant  holder  of 
securities. 

The  second  benefit  is  in  affording  a  test  of  the  utility  to  the  com- 
munity of  the  enterprises  which  solicit  the  support  of  investors.  The 
judgment  of  experts  is  there  expressed,  through  the  mediimi  of 
price,  on  the  utility  of  the  object  dealt  in.  If  an  unprofitable  rail- 
road is  built  in  the  wilderness  of  Manitoba,  the  investor  does  not 
have  to  hunt  up  information  on  the  freight  and  passengers  carried : 
he  has  only  to  look  at  the  quotations  on  the  New  York  Stock  Ex- 
change to  know  at  once  the  judgment  of  experts  on  it  as  a  com- 
mercial venture.  If  the  investor  finds  that  the  stocks  of  cotton- 
mills  are  declining,  he  makes  up  his  mind  that  there  are  no  further 
demands  for  cotton  mills.  If  stocks  are  exceptionally  high,  he 
knows  that  the  public  demands  more  cotton  mills,  and  that  an  in- 
vestment in  them  will  prove  profitable.  All  this  information  is  put 
before  the  investor  in  a  single  table  of  figures.  It  would  be  prac- 
tically unattainable  in  any  other  form.  Thus  there  is  afforded  to 
capital  throughout  the  world  an  almost  unfailing  index  of  the  course 
in  which  new  production  should  be  directed. 

Suppose  for  a  moment  that  the  stock  markets  of  the  world  were 
closed,  that  it  was  no  longer  possible  to  learn  what  concerns  were 
paying  dividends,  what  their  stocks  were  worth,  how  industrial  es- 
tablishments were  faring.  How  would  the  average  man  determine 
how  new  capital  should  be  invested.  He  would  have  no  guide  ex- 
cept the  most  isolated  facts  gathered  here  and  there  at  great  ex- 
pense and  trouble.  A  great  misdirection  of  capital  and  energy 
would  result.  The  stock  market  is  the  great  governor  of  values, — 
the  guide  which  points  the  finger  to  where  capital  is  needed  and 
where  it  is  not  needed. 

The  ver>'  sensitiveness  of  the  stock  market  is  one  of  its  safe- 
guards. Again  and  again  it  is  declared  in  the  market  reports  that 
certain  events  have  been  discounted.  As  a  consequence  when  the 
event  actually  happens,  it  results  in  no  such  great  disturbance  to 
values  as  was  expected.  Is  it  not  better  that  this  discounting  of 
future  possibilities  should  occur?  Is  it  desirable  that  capital  and 
production  should  march  blindly  to  the  edge  of  a  precipice  and  then 
leap  off,  instead  of  descending  a  gradual  decline?  This  discounting 
of  the  market  enables  the  man  who  holds  a  given  security  to  convert 
it  into  money  without  being  ruined.  It  enables  the  prudent  man  to 
hold  on  to  his  securities  and  even  to  buy  those  of  the  frightened  and 
more  excited. 

Another  important  influence  of  the  stock  exchange  is  that  which 
it  exerts  upon  the  money  market.    The  possession  by  any  countr\- 


178  CURRENT  ECONOMIC  PROBLEMS 

of  a  large  mass  of  salable  securities  affords  a  powerful  guarantee 
against  the  effects  of  a  severe  money  panic.  If  in  New  York  there 
arises  a  sudden  pressure  for  money,  the  banks  call  in  loans  and 
begin  to  husband  their  cash.  If  they  hold  large  quantities  of  securi- 
ties salable  on  the  London  or  Paris  or  Berlin  market,  a  cable  order 
will  effect  the  sale  of  these  in  an  hour,  and  the  gold  proceeds  will 
soon  be  available.  These  securities  prevent  sudden  contraction  and 
expansion  in  the  rate  of  loans.  This  influence  of  the  stock  market 
has  much  the  effect  of  a  buffer  upon  the  impact  of  two  solid  bodies. 
Crises  are  prevented  when  they  can  be  prevented,  and  when  they 
cannot  they  are  anticipated,  and  their  force  is  broken.  Securities 
are  in  many  cases  better  than  money.  If  a  large  shipment  of  money 
has  to  be  made  from  New  York  to  London,  it  is  much  more  eco- 
nomical to  ship  securities  of  the  same  amount  than  to  ship  kegs  of 
gold.  Credit  is  forwarded  by  cable  and  the  securities  follow  by 
mail.  All  markets  are  thus  brought  into  touch  with  each  other,  and 
respond  to  a  fluctuation  of  a  fraction  of  one  per  cent,  but  without 
the  confusion  and  crash  which  would  ensue  if  every  sudden  pressure 
for  money  was  felt  upon  a  market  naked  of  such  securities. 

There  is  another  important  consideration  in  this  influence  of  the 
stock  market  upon  modem  society,  which  will  perhaps  gather  up 
and  bring  into  a  clearer  light  some  of  the  other  points  which  have 
been  made.  The  stock  market,  by  bringing  all  values  to  a  level  in 
a  common  and  public  market,  determines  the  direction  of  produc- 
tion in  the  only  way  in  which  it  can  be  safely  determined 
under  the  modern  industrial  system  of  production  in  anticipa- 
tion of  demand.  It  does  so  by  offering  the  highest  price  for  money 
and  for  the  earnings  of  money  at  the  point  where  they  are  most 
needed.  It  is  only  through  the  money  maricet  and  the  stock  ex- 
change together  that  any  real  clue  is  afforded  of  the  need  for  capital, 
either  territorially  or  in  different  industries.  Capital  is  attracted  to 
securities  that  are  selling  high  because  the  industries  they  represent 
are  earning  well.  Consequently  there  results  a  closer  adjustment 
of  production  to  consumption,  of  the  world's  work  to  the  world's 
need,  than  would  be  possible  under  any  other  system. 

89.     The  Experience  of  Germany  with  Stock  Exchanges^^ 

In  1892  a  commission  was  appointed  by  the  German  government 
to  investigate  the  methods  of  the  Berlin  Exchange.  The  regular 
business  of  the  Exchange  embraced  both  securities  and  commodi- 

•' Adapted  from  The  Report  of  the  Hughes'  Committee  (AT,  Y.)  on  Specu- 
lation in  Securities  and  Commodities  (1909). 


PECUNIARY  ORGANIZATION  179 

ties;  it  was  an  open  board  where  anybody  by  paying  a  small  fee 
could  trade.  The  broker  could  make  such  charge  as  he  pleased  for 
his  services.  Margins  were  not  always  required.  Under  the  cir- 
cumstances many  undesirable  elements  entered  the  exchange. 

The  commission  was  composed  of  governmental  officials,  mer- 
chants, bankers,  manufacturers,  professors  of  political  economy,  and 
journalists.  Its  report  was  completed  in  November,  1893.  Al- 
though there  had  been  a  wide-spread  popular  demand  that  all  short 
selling  be  prohibited,  the  commission  reported  that  such  a  policy 
would  be  harmful  to  German  trade  and  industry.  They  were  will- 
ing, however,  to  prohibit  speculation  in  industrial  stocks. 

The  Reichstag,  however,  rejected  the  recommendations  of  the 
commission,  and  in  1896  enacted  a  law  much  more  drastic.  The 
landowners,  constituting  the  powerful  agrarian  party,  contended 
that  short-selling  lowered  the  price  of  agricultural  products,  and 
demanded  that  contracts  on  the  Exchange  for  the  future  delivery  of 
wheat  and  flour  be  prohibited.  The  Reichstag  assented  to  this  de- 
mand. It  also  prohibited  trading  on  the  Exchange  in  industrial  and 
mining  shares  for  future  delivery.  It  enacted  that  every  person  de- 
siring to  carry  on  speculative  transactions  be  required  to  enter  his 
name  in  a  public  register,  and  that  speculative  trades  by  persons  not 
so  registering  be  deemed  gambling  contracts  and  void.  The  object 
was  to  deter  small  speculators  and  to  restrict  speculation  to  men  of 
character  and  capital. 

The  results  were  quite  different  from  the  intention  of  the  legis- 
lature. Men  of  character  and  capital  declined  to  advertise  them- 
selves as  speculators.  The  small  fry  found  no  difficulty  in  evading 
the  law.  Foreign  brcJcers  flocked  to  Berlin  and  established  agencies 
for  the  purchase  and  sale  of  foreign  stocks.  Seventy  such>  offices 
were  opened  in  Berlin  within  one  year  after  the  law  was  passed 
and  did  a  flourishing  business.  German  capital  was  thus  transferred 
to  foreign  markets.  The  Berlin  Exchange  became  insignificant  and 
the  financial  standing  of  Germany  as  a  whole  was  impaired. 

There  was,  however,  even  a  more  serious  consequence  of  the 
new  law.  While  bankers  and  brokers  were  required  to  register, 
their  customers  were  not  compelled  to  do  so.  Consequently  the 
latter  could  speculate  through  different  brokers  on  both  sides  of  the 
market,  pocketing  their  profits  and  welching  on  their  losses  as  gam- 
bling contracts.  Numerous  cases  of  this  kind  arose,  and  in  some 
the  plea  of  wagering  was  entered  by  men  who  had  previously  borne 
a  good  reputation. 


i8o  CURRENT  ECONOMIC  PROBLEMS 

Another  consequence  was  to  turn  over  to  the  large  banks  much 
of  the  business  previously  done  by  independent  houses.  Persons 
who  desired  to  make  speculative  investments  in  home  securities  ap- 
plied directly  to  the  banks,  depositing  with  them  satisfactory  security 
for  the  purchases.  As  the  German  banks  were  largely  promoters 
of  new  enterprises,  they  could  sell  the  securities  to  their  depositors 
and  finance  the  enterprise  with  the  deposits.  This  was  a  profitable 
and  safe  business  in  good  times,  but  attended  by  danger  in  periods 
of  stringency,  since  the  claims  of  depositors  were  payable  on  de- 
mand. Here  again  the  law  worked  grotesquely,  since  customers 
whose  names  were  not  on  the  public  register  could,  if  the  specula- 
tion turned  out  badly,  reclaim  the  collateral  or  cash  they  had  depos- 
ited as  security. 

The  evil  consequences  of  the  law  brought  about  its  partial  repeal 
in  1908.  By  a  law  then  passed  the  government  may,  in  its  discre- 
tion, authorize  speculative  transactions  in  industrial  and  mining 
securities  of  companies  capitalized  at  not  less  than  $5,000,000;  the 
Stock  Exchange  Register  was  abolished ;  all  persons  whose  names 
were  in  the  commercial  directory  were  declared  legally  bound  by 
contracts  made  by  them  on  the  Exchange.  Other  persons,  while  not 
legally  bound  by  such  contracts,  could  not  reclaim  deposits  of  cash 
or  collateral  security  for  speculative  contracts,  on  the  plea  that  the 
contract  was  illegal. 

Germany  is  now  seeking  to  recover  the  legitimate  business 
thrown  away  twelve  years  ago.  It  still  prohibits  short  selling  of 
grain  and  flour,  although  the  eflfects  of  the  prohibition  have  been 
quite  diflferent  from  those  which  its  supporters  anticipated.  As 
there  are  no  open  markets  for  these  products,  and  no  continuous 
quotations,  both  buyers  and  sellers  are  at  a  disadvantage ;  prices  are 
more  fluctuating  than  they  were  before  the  passage  of  the  law 
against  short-selling. 

F.    THE  CORPORATION 
90.     The  Nature  of  the  Business  Corporation'" 

BY  HARRISON  S.  SMALLEY 

Superficially  considered,  a  corporation  is  an  association  of  per- 
sons for  the  accomplishment  of  certain  purposes.  While  non-com- 
mercial motives  lead  to  the  organization  of  corporations,  most  of 
them  are  formed  with  money-making  ends  in  view.    These  last  are 

^'Adapted  from  a  textbook  entitled  The  Corporation  Problem,  privately 
published   (1912). 


PECUNIARY  ORGANIZATION  i8i 

called  business  corporations.  Persons  become  members  by  acquiring 
one  or  more  shares  of  stock,  on  which  account  they  are  called  share- 
holders. 

A  share  of  stock  represents  an  interest  in.  the  business ;  hence 
a  stockholder  is  an  entrepreneur.  All  the  shares  of  stock  repre- 
sent all  the  interests  in  the  business;  and  thus  if  there  are  i,ooo 
shares  of  stock  outstanding,  one  who  owns  loo  shares  has  a  one- 
tenth  interest  in  the  business.  A  nominal  value,  called  the  "par 
value"  is  assigned  by  the  corporation  to  its  stock.  In  most  cases  the 
par  value  of  a  share  is  $ioo,  though  many  companies  have  chosen 
other  sums.  The  total  par  value  of  all  the  stock  does  not  necessarily 
equal  the  value  of  the  corporation's  property. 

All  net  earnings,  treated  as  profits,  are  distributed  among  the 
stockholders  pro  rata,  and  are  called  dividends. 

The  price  of  a  share  of  stock  depends  largely  upon  the  rate 
of  dividends  customarily  paid  on  it.  If  six  or  seven  per  cent,  per 
annum  is  paid,  the  price  will  be  about  par;  if  twenty  per  cent,  can 
be  paid  each  year,  the  price  will  be  far  above  par.  But  numerous 
other  factors,  for  instance,  the  general  credit  and  standing  of  the 
company,  the  apparent  future  prospects  of  industries  of  that  type, 
the  condition  of  the  money  market,  the  general  business  situation, 
all  share  in  determining  the  price  of  the  stock. 

In  addition  to  a  right  to  dividends,  the  shareholder  is  entitled 
to  other  privileges  and  advantages.  If  the  business  is  closed  out, 
he  has  a  right  to  his  proportionate  share  of  the  net  assets.  During 
its  life  he  has  a  voice  in  the  management  of  the  enterprise.  In  ad- 
dition to  electing  the  directors,  the  stockholders  have  a  right  to  de- 
cide such  questions  of  exceptional  character  as  the  issue  of  stocks 
and  bonds,  the  amendment  of  the  corporate  charter,  the  dissolution 
of  the  business,  etc.  Aside  from  these  few  extraordinary  matters,  the 
stockholders  are  without  power,  for  the  affairs  of  the  company 
are  in  the  hands  of  the  directors,  who,  once  elected,  may  manage 
the  business  as  they  see  fit.  All  that  the  stockholders  can  do  if  not 
satisfied  is  to  wait  until  the  next  annual  meeting  and  then  replace 
the  directors  with  others. 

In  stockholders'  meetings  each  stockholder  has  one  vote  for 
each  share  of  stock  held  by  him.  In  voting  for  directors  he  has 
as  many  votes  per  share  as  there  are  directors  to  be  elected.  Thus,  if 
five  directors  are  to  be  elected  and  he  holds  one  hundred  shares, 
he  has  five  hundred  votes.  These  he  can  distribute  in  any  way  he 
sees  fit.  He  can  cast  all  for  one  candidate,  one  hundred  for  each  of 
five,  or  otherwise.  This  is  called  cimiulative  voting.  He  is  privil- 
eged to  vote  by  proxy. 


i82  CURRENT  ECONOMIC  PROBLEMS 

In  a  majority  of  corporations,  most  of  the  stockholders  take 
no  active  part.  The  control  of  the  corporation  is  highly  autocratic 
rather  than  democratic  in  character.  Many  corporations  have  thous- 
ands of  members.  Yet  almost  alvi^ays  it  is  dominated  by  less  than 
a  dozen  men,  who  may  own  only  a  minority  of  its  stock.  Few  per- 
sons attend  the  annual  meeting  of  the  stockholders.  Parties  par- 
ticularly interested  collect  proxies  of  absent  members.  Thus  it  is 
relatively  easy  for  a  management  to  perpetuate  its  control  and  to 
carry  out  its  policies. 

In  many  corporations  the  stock  is  of  two  classes,  common  and 
preferred.  The  leading  diflference  is  that  dividends  at  a  certain 
fixed  rate  must  be  paid  on  the  preferred,  before  any  can  be  declared 
on  the  common ;  but  usually  there  are  also  other  differences.  If  the 
business  is  closed  up,  the  preferred  stockholders  usually  have  a 
prior  claim.  Not  infrequently  there  is  a  difference  in  voting  rights. 
In  some  cases  preferred  stockholders  cannot  vote  unless  their  divi- 
dends are'  in  arrears.  In  other  cases  the  preferred  stockholders  are 
entitled  to  elect  a  certain  number  of  directors,  and  the  common 
stockholders  the  rest. 

Cumulative  preferred  stock  is  stock  upon  which,  in  addition  to 
-  current  dividends,  all  arrears  of  dividends  must  be  paid  before  any 
dividends  can  be  declared  on  the  common. 

A  corporation  usually  puts  out  bonds.  The  bond  does  not 
represent  an  investment  in  the  business ;  it  simply  evidences  a  debt 
owed  by  the  corporation  to  an  outsider.  A  bond  is,  in  effect,  a 
formal  promissory  note,  a  promise  to  repay  money  with  interest  at  a 
certain  per  cent.  The  bondholder  is  not  an  entrepreneur,  but  simply 
a  capitalist.  In  consequence  he  has  no  vote  in  corporate  affairs. 
Bonds  are  almost  invariably  secured  by  a  mortgage  upon  a  part 
or  all  of  the  corporate  property.  All  the  stocks  and  bonds  of  a  cor- 
poration are  known  as  itS'  securities,  and  the  sum  of  the  par 
values  of  all  the  securities  is  called  the  "capitalization"  of  the  cor- 
poration. 

If  a  corporation  is  unable  to  pay  interest  on  its  bonds,  or  is 
otherwise  insolvent,  the  proper  court  will,  on  application,  appoint  a 
receiver,  who,  as  a  temporary  officer  of  the  court,  takes  charge  of  the 
corporate  property  and  business.  In  these  days  it  is  deemed  inex- 
pedient to  terminate  an  established  enterprise,  except  in  rare  cases, 
and  the  receiver  continues  the  business  and  attempts  to  build  it  up. 

While  the  receiver  is  thus  engaged,  the  security  holders  fomi 
one  or  more  "reorganization  committees,"  to  put  the  corporation  on 


PECUNIARY  ORGANIZATION  183 

a  sounder  basis.  They  must  raise  money  to  pay  off  back  debts.  Gen- 
erally they  must  scale  down  the  capitalization,  so  that  the  earning 
power  will  cover  the  bond  interest  and  also  a  fair  rate  of  dividends. 
This  means  that  existing  security  holders  must  allow  a  portion  of 
their  securities  to  be  cancelled,  and  the  struggle  to  see  how  much 
each  class  of  security  holders  will  sacrifice  is  often  long  and  bitter. 
Preferred  stockholders  suffer  more  than  bondholders,  and  common 
stockholders  more  than  preferred.  Sometimes  the  stockholders  are 
wholly  '"frozen  out." 

A  corporation  can  be  formed  only  with  the  consent  of  the  gov- 
ernment, and  upon  such  conditions  as  the  government  may  pre- 
scribe. The  instrument,  granted  by  the  state,  and  specifying  the 
terms  and  conditions  upon  which  the  corporation  may  engage  in 
the  business  for  which  it  is  organized,  is  called  the  charter.  In  this 
countrj'  the  legislative  branch  of  the  government  has  always  exer- 
cised the  function  of  creating  corporations.  According  to  "general 
laws,"  now  universally  in  force,  any  group  of  persons,  not  less  in 
number  than  a  fixed  minimum,  can  become  a  body  corporate  under 
the  conditions  laid  down  in  the  law. 

A  few  striking  facts  will  show  that  in  the  eyes  of  the  law  the 
corporation  is  an  entity  distinct  from  the  stockholders,  having  a  l^al 
status  and  legal  rights  and  liabilities  of  its  own.  First,  the  corporate 
property  belongs  to  the  corporation  itself,  not  to  the  members;  a 
change  in  membership  does  not  disturb  the  title.  Second,  a  corpora- 
tion's contract  is  not  the  undertaking  of  its  members.  Third,  the 
transfer  of  shares  by  the  members  has  no  effect  upon  the  life  of  the 
corporation. 

Lawyers  and  judges  have  regarded  the  corporation  as  an  arti- 
ficial person.  The  trouble  resulting  from  that  concept  has  been 
evident  in  connection  with  the  penal  laws  concerning  corporations. 
We  have  attempted  to  punish  the  corporation  for  violations  of  law, 
when  it  is  evident  that  in  every  offense  the  real  actors  are  human 
beings.  To  inflict  a  fine  on  a  corporation  is  to  lay  a  burden  on  the 
whole  body  of  stockholders.  In  reality  a  few  men  committed  the 
offense.  Such  a  method  of  corporate  punishment  is,  therefore,  as 
unjust  as  it  is  ineffectual.  Consequently  there  has  arisen  the  say- 
ing "guilt  is  personal,"  and  we  are  now  beginning  to  attack  the  re- 
sponsible individuals  themselves. 

The  true  view  of  the  corporation  would  seem  to  be  that  it  is  an 
imaginary  entity  which  ser\'es  the  association  of  persons  as  a  con- 
venient instrument  through  which  they  may  conduct  their  business. 


i84  CURRENT  ECONOMIC  PROBLEMS 

qi.     Corporate  Distribution  of  Risk  and  Control^* 

BY  W.  H.  I^YON 

The  corporation  makes  possible  a  parceling-out  of  the  incidents 
of  ownership  in  many  combinations,  an  allotment  of  management, 
risk,  and  income  in  varying  proportions.  The  line  of  apportionment 
becomes  very  flexible. 

The  corporate  form  marks  the  line  of  division  of  management 
into  administration  and  control.  Shareholders  possess  control,  but 
through  directors  delegate  administration  to  officers.  Varying  rights 
given  special  classes  of  stock  make  a  widely  varying  apportionment 
of  income,  control,  and  risk.  Common  stockholders  accept  a  maxi- 
mum of  risk  in  expectation  of  a  maximum  of  income.  They  may 
share  the  incident  of  control  equally  or  in  varying  proportions  with 
other  classes  of  stock.  If  two  classes  of  stock  enjoy  exactly  equal 
rights,  except  that  one  has  preference  as  to  income,  they  do  not 
divide  control,  but  risks,  and  the  combination  of  control  plus  risk  in 
one  as  compared  with  the  combination  of  control  plus  risk  in  the 
other  makes  the  ownership  represented  by  one  class  entirely  different 
from  the  ownership  represented  by  the  other. 

We  may  speak  of  these  divisions  and  combinations  of  income, 
control,  and  risk,  creating  different  kinds  of  ownership,  as  horizon- 
tal divisions.  But  there  is  another  division  of  ownership,  that  repre- 
sented by  the  number  of  shares  of  stock  or  the  number  of  bonds. 
It  makes  a  division  into  amount  of  ownership  rather  than  kind,  into 
quantity  rather  than  quality,  a  perpendicular  division. 

Now  these  two  kinds  of  division  of  ownership  accomplish  two 
very  different  results.  The  perpendicular  division  of  amounts  of 
ownership  makes  possible  the  fitting  of  every  man's  pocketbook  or 
financial  ability.  The  horizontal  division  into  kinds  of  ownership 
results  in  an  even  more  difficult  fitting,  that  of  his  type  or  state  of 
mind.  For  one  man  may  be  more  or  less  willing  to  take  a  chance 
than  another.  The  same  man  may  be  more  willing  at  one  time  than 
another.  He  may  be  unwilling  to  take  any  risk  without  having  some 
control. 

A  corporation's  stock  regularly  carries  the  largest  share  of  pres- 
ent control  and  also  regularly  the  largest  share  of  risk.  The  stock 
may  itself  divide  into  two  or  more  classes  having  obviously  diver- 
gent interests,  with  the  result  that  each  class  will  exercise  for  differ- 
ent purposes  the  amount  of  control  it  possesses.  If  there  is  common 
stock  and  preferred  stock  with  a  limited  dividend,  the  common  share- 

"* Adapted  from  Capitalisation:  A  Book  of  Corporation  Finance,  6-16. 
Copyright  by  the  author.    Published  by  Houghton,  MifHin  &  Co.    (1912). 


PECUNIARY  ORGANIZATION  185 

holders  may  throw  their  influence  in  favor  of  a  more  hazardous 
conduct  of  the  enterprise  with  an  expectation  of  greater  profit 
accruing  to  them.  Since  the  preferred  stockholders  get  only  lim- 
ited dividends,  they  will  throw  their  influence  in  favor  of  a  safer 
conduct  of  the  business.  Interests  of  both  classes  of  stockholders 
might  coincide.  If  the  corporation  should  not  earn  enough  to  pay 
full  dividends  on  preferred  stock,  the  preferred  stockholders  might 
desire  the  more  hazardous  conduct  of  the  business.  If  the  amount 
of  preferred  and  common  were  the  same,  and  each  had  the  same 
voting  power,  each  class  would  enjoy  control  equally.  In  practice 
this  might  not  lead  to  a  dead-lock  in  policy,  for  one  shareholder  own- 
ing a  large  amount  of  common  and  a  small  amount  of  preferred 
might  vote  his  preferred  to  favor  his  common.  If  the  amount  of 
common  were  twice  as  great  as  the  amount  of  preferred,  and  a  share 
of  each  class  had  the  same  voting  rights,  the  quality  of  control 
would  in  a  way  differ  just  as  truly  as  if  the  amounts  of  each  class 
were  equal  but  a  greater  voting  power  were  given  the  common 
than  the  preferred.  In  either  case  the  common  shareholder  in  a 
clash  of  interests  would  be  more  likely  to  have  the  corporation's 
policy  incline  to  his  advantage. 

A  corporation  having  only  one  class  of  stock,  and  no  other  secu- 
rities, offers  the  simplest  type.  Such  a  security  carries  all  the  con- 
trol, all  the  income,  and  all  the  risk.  It  effects  only  a  vertical  divis- 
ion of  ownership.  This  form  is  proper  if  a  satisfactor>-  division 
of  income,  management,  and  risk  cannot  be  made.  A  mining  com- 
pany especially  cannot  well  divide  the  peculiar  hazards  of  the  enter- 
prise. Since  any  class  of  mining  securities  must  retain  so  much 
risk,  investors  will  not  sacrifice  anything  of  income  or  control.  So 
it  follows  that  nearly  all  mining  corporations,  including  oil  com- 
panies, have  only  one  class  of  stock  and  no  other  securities.  Coal- 
mining companies  have  issued  bonds  to  some  extent,  but  this  busi- 
ness rests  upon  a  more  assured  basis  than  mining  for  metals.  Man- 
ufacturing companies  frequently  issue  no  securities  but  their  com- 
mon stock.  This  is  probably  due  to  the  fact  that  they  are  engaged 
in  established  kinds. of  business  and  follow  the  precedents  set  by 
the  older  partnerships.  So  far  our  financial  ingenuity  has  directed 
itself  for  the  most  part  to  the  comparatively  new  forms  of  business, 
railroads  and  other  public-service  corporations.  With  the  coming 
of  the  big  industrial  concerns  more  complex  forms  of  financing  ap- 
pear, and  will  probably  make  their  way  generally  into  industrial 
corporations.  Though  a  holding  company  may  have  only  common 
stock,  that  fact  does  not  necessarily  imply  simplicity,  for  the  sub- 
sidiary companies  may  have  complex  capitalizations. 


i86  CURRENT  ECONOMIC  PROBLEMS 

92.     The  Management  of  the  Corporation^' 

BY  WESLEY  C.  MITCHEI.L 

The  classical  economists  assumed  that  there  stood  at  the  head  of 
the  typical  business  enterprise  a  capitalist-employer,  who  provided  a 
large  part  of  the  capital  invested,  assumed  the  pecuniary  risk,  per- 
formed the  work  of  superintendence,  and  pocketed  the  profits. 
Many  enterprisers  of  this  versatile  type  remain  today;  but  the  ex- 
traordinary growth  in  size  and  influence  of  the  joint-stock  company 
has  given  greater  prominence  to  another  form  of  business  manage- 
ment. 

The  large  corporation,  dominant  in  business  today,  is  owned  by 
a  miscellaneous  and  shifting  body  of  stockholders.  The  funds  re- 
quired for  fixed  investment  are  provided  in  some  measure  by  these 
owners,  but  in  larger  part  by  bondholders,  who  may  or  may  not  own 
shares  as  well  as  bonds.  The  work  of  management  is  usually  dis- 
associated from  ownership  and  risk.  The  stockholders  delegate  the 
supervision  of  the  corporation's  affairs  to  the  directors  and  they  turn 
over  the  task  of  administration  to  a  set  of  general  officers.  The 
latter  are  commonly  paid  fixed  salaries. 

In  such  an  organization  it  is  difficult  to  find  anyone  who  corre- 
sponds closely  to  the  capitalist-employer.  Neither  the  typical  stock- 
holder, who  votes  by  proxy,  nor  the  typical  director,  who  gives  his 
attention  to  routine  affairs,  fills  the  bill.  The  general  officers,  re- 
munerated largely  by  salaries,  and  practicing  among  themselves  an 
elaborate  division  of  labor,  have  no  such  discretion  and  carry  no 
such  risk  as  the  capitalist-employer.  The  latter  has,  in  fine,  been  re- 
placed by  a  "management,"  which  includes  several  active  directors 
and  high  officials,  and  often  certain  financial  advisers,  legal  counsel, 
and  large  stockholders  who  are  neither  directors  nor  officials.  It 
is  this  group  which  decides  what  shall  be  done  with  the  corporation's 
property. 

In  other  cases,  however,  a  single  enterpriser  dominates  the  cor- 
poration, and  wields  full  authority.  The  stockholders  elect  his  can- 
didates, the  directors  defer  to  his  judgment,  the  officials  act  as  his 
agents.  His  position  may  be  firmly  intrenched  by  an  ownership  of 
a  majority  of  the  voting  shares,  or  may  rest  upon  personal  influence 
over  the  owners  of  voting  shares.  In  the  "one-man"  corporations 
the  theoretical  division  of  authority  and  function  becomes  a  legal 
fiction.  Practically  the  dominant  head  corresponds  to  the  old  cap- 
italist-employer, except  for  the  fact  that  he  furnishes  a  far  smaller 

^'Adapted  from  Business  Cycles,  32-34.  Copyright  by  the  author  (1913). 
Published  by  the  University  of  California  Press. 


PECUNIARY  ORGANIZATION  187 

proportion  of  the  capital,  carries  a  far  smaller  proportion  of  the 
pecuniary  risk,  and  performs  a  far  smaller  proportion  of  the  detailed 
labor  of  superintendence.  These  limitations  do  not  restrict,  but  on 
the  contrary  enhance,  his  power,  because  they  mean  that  the  indi- 
vidual who  "owns  the  control"  can  determine  the  use  of  a  mass  of 
pr/^perty  and  labor  vastly  greater  than  his  own  means  would  permit. 

While  the  corporate  form  of  organization  has  made  a  theoretical 
division  of  the  leadership  of  business  enterprises  among  several 
parties  at  interest,  it  has  also  made  possible  in  practice  a  centraliza- 
tion of  power.  The  great  captains  of  finance  and  industry  wield  an 
authority  swollen  by  the  capital  which  their  prestige  attracts  from 
thousands  of  investors,  and  often  augmented  still  further  by  working 
alliances  among  themselves.  Among  the  enterprisers  of  the  whole 
country,  this  small  coterie  exercises  an  influence  out  of  proportion 
not  only  to  their  numbers  but  also  to  their  wealth.  The  men  at  the 
head  of  smaller  enterprises,  though  legally  free,  find  their  field  of 
initiative  limited  by  the  operations  of  these  magnates. 

In  large  corporations  the  few  individuals  in  control  have  an  op- 
portunity to  make  money  for  themselves  at  the  expense  of  the  en- 
terprise itself,  or  at  the  expense  of  the  other  parties  at  interest.  By 
giving  lucrative  contracts  to  construction  or  repair  companies  in 
which  they  are  interested,  by  utilizing  their  advance  information  of 
the  corporation's  affairs  for  speculation  in  the  price  of  its  shares, 
by  rigging  its  accounts  for  the  same  purpose,  by  making  loans  or 
granting  rebates  to  other  companies  in  which  they  are  interested, 
it  is  possible  for  an  inner  ring  to  make  profits  out  of  wrecking  the 
corporation.  There  are  certainly  instances  enough  to  invalidate  the 
easy  assumption  that  every  business  enterprise  is  managed  to  make 
money  for  the  whole  body  of  its  owners. 


93.    The  Ethics  of  Corporate  Management^* 

BY  HENRY  ROGERS  SEAGER 

It  is  probably  within  the  truth  to  say  that  one-half  of  the  business 
of  the  United  States  is  now  controlled  by  corporations  and  there  is 
every  indication  that  the  proportion  is  increasing.  This  makes  im- 
portant the  recognition  of  certain  drawbacks  attaching  to  the  cor- 
porate form  of  organization.  Chief  among  these  is  the  fact  that 
responsibility  for  the  management  of  corporations  is  diffused.  In 
one-man  businesses  and  partnerships  the  men  who  organize  and 

**Adapted  from  Principles  of  Economics,  161-163.     Copyright  by  Henrj 
Holt  &  Co.   (1913). 


1 88  CURRENT  ECONOMIC  PROBLEMS 

manage  the  enterprise  are  the  ones  most  vitally  interested  in  its  suc- 
cess. In  corporations  the  stockholders,  who  usually  furnish  the 
capital  required  and  have  to  bear  the  loss  if  things  go  wrong,  in- 
trust their  interests  to  the  board  of  directors.  The  board  of  direc- 
tors in  turn  deputes  the  actual  management  of  the  business  to  a 
salaried  president  or  manager  who  may  not,  and  often  does  not, 
have  any  further  interest  in  the  business  than  that  his  reputation 
depends  upon  the  honesty  and  wisdom  with  which  he  manages  it. 
The  enterpriser  function  is  thus  divided  in  the  corporation  between 
three  parties  no  one  of  whom  has  the  same  vital  interest  in  the  bus- 
iness that  a  single  enterpriser  or  partner  feels  in  businesses  con- 
ducted under  other  plans.  Moreover,  fewr  directors  or  managers 
have  not,  at  times,  private  interests  in  conflict  with  the  corporate 
interests  they  are  supposed  to  promote.  This  diffusion  of  responsi- 
l>ility  and  interest  causes  corporate  management  to  be  often  waste- 
ful and  sometimes  corrupt.  The  salaries  are  frequently  higher  than 
they  need  to  be  to  secure  the  required  grade  of  labor,  appointments 
are  often  determined  by  personal  rather  than  by  business  consider- 
ations, and  inflated  prices  are  sometimes  paid  for  materials  in  conse- 
quence of  the  fact  that  particular  directors  are  interested  in  their 
production.  More  common  than  these  clear  violations  of  trust  are 
misrepresentations  in  regard  to  the  affairs  of  the  corporation  in- 
tended to  influence  the  stock  market  and  to  enable  those  interested 
to  carry  through  deals  for  their  own  benefit. 

Another  abuse  is  connected  with  the  borrowing  power  of  cor- 
porations. When  this  power  is  used  to  secure  money  by  the  sale  of 
bonds  the  law  gives  to  bondholders  no  voice  in  the  management  of 
the  corporation  so  long  as  their  interest  is  paid  and  the  principal  is 
not  defaulted.  The  larger  the  proportion  of  the  capital  required 
for  any  enterprise  that  is  secured  through  the  sale  of  bonds,  the 
smaller  is  the  interest  in  the  business  of  the  stockholders,  who  nev- 
ertheless continue  to  control  it.  It  has  often  happened  in  connec- 
tion with  railway  corporations  in  the  United  States  that  the  entire 
capital  has  been  secured  by  selling  bonds  and  that  the  stock  has 
represented  merely  a  bonus  paid  to  the  promoters  of  the  company. 
This  is  a  situation  fraught  with  danger,  as  American  experience  has 
abundantly  proved.  To  give  a  fictitious  value  to  their  stock,  pro- 
moters are  only  too  apt  to  pay  dividends  out  of  earnings  that  should 
be  expended  for  renewals  and  replacements.  Before  the  corporation 
is  reduced  to  bankruptcy  they  can  usually  sell  their  holdings  to  un- 
suspecting investors  and  retire,  leaving  to  them  the  task  of  reor- 
ganizing the  business. 


PECUNIARY  ORGANIZATION  189 

A  third  set  of  evils  has  reference  to  the  general  or  public  inter- 
est in  corporations.  Individuals  in  their  pursuit  of  gain  are  con- 
trolled by  the  moral  standards  of  their  business  associates.  Cor- 
porations have  no  moral  standards.  Their  directors  have  shov^^n 
themselves  willing  to  wink  at  practices  on  the  part  of  the  officials 
they  appoint  to  which  they  would  not  themselves  stoop.  Corpora- 
tion officials,  moreover,  do  not  hesitate  to  do  things  in  the  name  and 
under  the  cover  of  the  corporations  which  they  would  be  ashamed 
to  perform  openly  for  themselves.  In  the  United  States  corpora- 
tions have  been  guilty  of  buying  legislatures,  bribing  judges,  enter- 
ing into  agreements  with  political  parties  insuring  them  certain  priv- 
ileges in  return  for  campaign  contributions,  and  in  fact  of  every  sin 
in  the  political  calendar.  It  is  largely  owing  to  them  that  the  tone 
not  only  of  business,  but  of  political  morality,  is  so  much  below  the 
standards  of  private  life. 

94.    The  Corporation  and  Personal  Elficiencjr*^ 

BY  GEORGE  W.  PERKINS 

Perhaps  the  most  useful  achievement  of  the  great  corporation 
has  been  the  saving  of  waste  in  its  particular  line  of  business.  By 
assembling  the  best  brains,  the  best  genius,  the  best  energy  in  a 
given  line  of  trade,  and  co-ordinating  these  in  work  for  a  common 
end,  great  results  have  been  attained  in  the  prevention  of  waste,  the 
utilizing  of  by-products,  the  economizing  in  the  manufacture  of  the 
product,  the  expense  of  selling,  and  through  better  and  more  uni- 
form service. 

This  same  grouping  of  men  has  raised  the  standard  of  their 
efficiency.  Nothing  develops  man  like  contact  with  other  men.  A 
dozen  men  working  apart  and  for  separate  ends  do  not  develop  the 
facility,  the  ideas,  the  general  effectiveness  that  will  become  the 
qualities  of  a  dozen  men  working  together  in  one  cause.  In  such 
work  emulation  plays  a  useful  part;  it  does  all  the  good  and  none 
of  the  harm  that  the  old  method  of  restrictive  competition  did; 
the  old  competition  was  wholly  self-seeking  and  often  ruinous,  while 
the  new  rivalry,  within  the  limits  of  the  same  organization,  is  con- 
structive and  uplifting.  Thus  the  great  corporation  has  developed 
men  of  a  higher  order  of  business  ability  than  ever  appeared  under 
the  old  conditions ;  and  what  a  value  this  has  for  the  coming  gen- 
eration ! 

"Adapted  from  "The  Modern  Corporation,"  5-8,  an  address  delivered 
at  Columbia  University.  February  7.  1008. 


Ipo  CURRENT  ECONOMIC  PROBLEMS 

We  have  heard  many  warnings  that  because  of  the  great  cor- 
poration we  have  been  robbing  the  oncoming  generation  of  its  op- 
portunities. Nothing  is  more  absurd.  The  larger  the  corporation, 
the  more  certain  is  the  office  boy  to  reach  ultimately  a  foremost 
place  if  he  is  made  of  the  right  stuff,  if  he  keeps  everlastingly  at 
it,  and  if  he  is  determined  to  become  master  of  each  position  he 
occupies. 

In  the  earlier  days,  the  individual  in  business,  as  a  rule,  left  his 
business  to  his  children.  Whether  or  not  they  were  competent 
did  not  determine  the  succession.  But  the  giant  corporation  can- 
not act  in  this  way.  Its  management  must  have  efficiency;  and 
nothing  has  been  more  noticeable  in  the  management  of  corpor- 
ations in  the  last  few  years  than  that  "influence,"  so-called,  as  an 
element  in  selecting  men  for  responsible  posts,  has  been  rapidly  on 
the  wane.  Everything  is  giving  way  and  must  give  way  to  the  one 
supreme  test  of  fitness. 

And  is  it  not  possible  that  the  acctunulating  of  large  fortunes  in 
the  future  may  be  curtailed  to  a  large  extent  through  the  very 
woricings  of  these  corporations?  Are  there  not  many  advantages 
in  having  corporations  in  which  there  are  a  large  number  of  po- 
sitions carrying  with  them  very  handsome  annual  salaries,  in  place 
of  firms  with  comparatively  few  partners — the  annual  profits  of 
each  one  of  whom  were  often  so  large  that  they  amassed  fortunes 
in  a  few  years  ?  A  position  carrying  a  salary  so  large  as  to  represent 
the  interest  on  a  handsome  fortune  can  be  permanently  filled  only 
by  a  man  of  real  ability,  so  that  in  case  a  man  who  is  occupying 
such  a  position  dies,  it  must,  in  turn,  be  filled  with  another  man  of 
the  same  order — while  the  fortune  might  be  and  most  likely  would 
be  passed  on  regardless  of  the  heir's  ability.  Therefore,  the  more 
positions  of  responsibility,  of  trust  and  of  honor,  that  carry  large 
salaries,  the  more  goals  we  have  for  young  men  whose  equipment 
for  life  consists  of  integrity,  health,  ability  and  energy. 

Further,  there  is  opportunity  in  the  corporation  for  a  man  not 
possessed  of  extraordinary  ability ;  wages  are  unquestionably  higher, 
and  labor  is  more  steadily  employed;  for,  in  a  given  line  of  trade, 
handled  to  a  considerable  extent  by  a  corporation,  there  are  prac- 
tically no  failures ;  while,  under  the  old  methods  of  bitter,  relent- 
less warfare,  failures  were  frequent,  and  failure  meant  paralysis 
for  labor  as  well  as  for  capital. 

The  great  corporation  is  increasing  opportunities  for  labor;  for 
it  is  unquestionably  making  business  conditions  sounder.  It  is  mak- 
ing business  steadier ;  because  firms  inevitably  change  and  dissolve, 
while  a  corporation  may  go  on  indefinitely ;  because  it  is  able  to  sur 


PECUNIARY  ORGANIZATION  191 

vey  the  field  much  better  than  could  a  large  number  of  firms  and 
individuals  and,  therefore,  vastly  better  able  to  measure  the  demand 
for  its  output  and,  if  properly  managed,  to  prevent  the  accumulation 
of  large  stocks  of  goods  that  are  not  needed — a  condition  which  often 
arose  under  the  old  methods  when  many  firms  were  in  ruthless  com- 
petition with  one  another  in  the  same  line  of  business,  oftentimes 
producing  serious  financial  difficulties  for  one  and  all. 

Broadly  and  generally  speaking,  the  corporation  as  we  know  it 
today,  as  we  see  it  working  and  feel  its  results,  is  in  a  formative 
state.  In  many  cases  actual  and  desperately  serious  situations 
caused  it  to  be  put  together  hurriedly.  In  many  cases  serious  mis- 
takes have  been  made  in  the  forms  of  organization,  in  the  methods 
of  management,  and  in  the  ends  that  have  been  sought  In  some 
instances  the  necessity  for  corporations  has  grown  faster  than  has 
the  ability  of  men  to  manage  them.  Yes,  mistakes  have  been  many 
and  serious.  But  the  corporation  is  with  us;  it  is  a  condition,  not 
a  theory,  and  there  are  but  two  courses  open  to  us — to  kill  it  or  to 
keep  it. 

95.    The  Function  of  the  Corporation 

BY  J.  B.  CANNING 

The  function  of  the  modern  business  corporation,  as  a  form  of 
business  organization,  is  to  increase  the  productivity  of  invested 
capital  and  to  facilitate  and  stimulate  saving.  The  peculiar  ability 
of  the  corporation  to  perform  this  function  is  due  to  its  unique  com- 
bination of  legal  rights  and  privileges  which  allows :  '( i )  indefinitely 
minute  division  of  its  certificates  of  ownership  (stocks)  and  of  its 
certificates  of  indebtedness  (bonds)  ;  (2)  limitation  of  liability  of 
its  members  (stockholders)  ;  (3)  the  distribution  of  the  risks  of  in- 
dustry, by  means  of  issues  of  different  classes  of  stocks  and  of  bonds, 
among  its  members  and  creditors;  (4)  the  delegation  by  its  mem- 
bers of  the  power  to  direct  and  administer  its  business  policy  to  its 
responsible  agents,  the  directors  and  officers ;  and  (5)  an  easy  means 
for  transferring  ownership  of  its  securities  from  one  investor  to 
another.  None  of  these  rights,  by  itself,  is  peculiar  to  the  corpora- 
tion. Partnerships  with  limited  liability  and  joint-stock  companies 
possess  them  in  part,  but  no  other  form  possesses  quite  so  advan- 
tageous a  combination  of  them. 

To  a  saver  investing  his  accumulations  of  capital  to  secure  an  in- 
come, the  value  of  a  nominal  income  of  given  amount,  rate  of  flow, 
and  time  of  accrual,  becomes  greater  as  the  possibility  of  loss  is  min- 
imized or  limited  and  as  the  probability  of  gain  is  increased.     In 


192  CURRENT  ECONOMIC  PROBLEMS 

general,  the  greatest  loss  possible  to  an  investor  in  the  stock  of  a 
corporation  is  limited  to  the  sum  paid  for  the  issued,  and  fully  paid, 
stock/'  For,  unlike  the  condition  found  in  the  ordinary  partnership, 
all  of  whose  members  are  agents  of  the  firm  and  each  of  whom  is, 
therefore,  unlimitedly  liable  for  any  and  all  obligations  incurred  in 
the  course  of  the  firm's  business  by  any  other  member,  the  corpora- 
tion is,  itself,  a  legal  person  and  its  stockholders  are  not  its  agents 
nor  are  they  bound  to  it  by  any  legal  obligation  other  than  that  of 
paying  for  the  stock  its  full  subscription  value.  To  a  stockholder, 
therefore,  the  ability  and  integrity  of  other  stockholders  is  a  matter 
of  no  concern  save  as  they  possess  the  right  to  vote  for  directors  and, 
indirectly,  for  officers,  both  of  whom  are  agents  of  the  corporation. 
Since  the  latter  are  agents  of  the  corporation  and  not  of  the  stock- 
holders, they  cannot  incur  obligations  for  which  the  stockholders  are 
liable. 

The  fact  that  a  corporation  may,  and  many  do,  issue  bonds  in 
convenient  denominations,  amply  secured,  as  to  their  so-called  prin- 
cipal, by  tangible  wealth  and,  as  to  their  income,  by  net  earnings  con- 
siderably above  the  amount  required,  makes  it  possible  for  the  small 
investor  with  little  knowledge  of  the  company's  probable  total  earn- 
ing capacity  to  invest  his  savings  in  what  is,  humanly  speaking,  a 
certain  income.  The  same  corporation  may  issue  another  class  of 
security,  preferred  stock,  which  generally  has  a  first  claim  upon 
assets  and  upon  income  after  the  claims  of  the  bondholders  are  dis- 
charged. Upon  these  stocks  a  definite  income,  usually  larger  than 
that  paid  the  bondholders,  is  promised — an  income  that  may  be,  and 
often  is,  secured  by  net  earnings  considerably  in  excess  of  the  amount 
necessary  for  the  purpose.  Purchase  of  this  stock  enables  the  in- 
vestor who  has  a  more  intimate  knowledge  of  the  company's  affairs 
and  prospects  to  secure  a  larger  income  without  necessarily  incur- 
ring greater  risk.  The  ability  of  the  corporation  to  issue  still  an- 
other class  of  security,  common  stock,  which  has  a  residual  claim 
upon  assets  and  upon  income  after  all  claims  of  the  holders  of  bonds 
and  of  preferred  stocks  have  been  met,  allows  still  another  class  of 
investors  who  have  the  most  intimate  knowledge  of  the  company's 
affairs,  and  who  are  most  willing  to  incur  risks,  to  secure  an  income 
objectively  less  certain  but  with  no  maximum  limit  other  than  the 
earning  capacity  of  the  company.  The  ability  of  the  corporation 
thus  to  issue  any  number  of  classes  of  securities,  each  with  a  dif- 
ferent rank  as  to  priority  of  claims  upon  assets  and  upon  income, 

**In  some  states  stockholders  are  liable  for  twice  the  par  value  of  the 
shares  held.    Holders  of  the  stocks  of  national  banks  have  a  double  liability. 


PECUNIARY  ORGANIZATION  193 

allows  for  any  relative  distribution  of  risks  and  of  rewards  that 
promises  to  please  the  investing  public  best. 

In  addition  to  the  limitation  of  liability,  which,  in  general,  limits 
possible  loss  to  the  amount  paid  for  an  issued  and  fully  paid  stock, 
and  in  addition  to  the  possibility  of  selecting  from  a  given  corpora- 
tion's securities  one  carrj-ing  little  appreciable  risk,  the  investor  has 
another,  and  very  important,  means  of  reducing  the  risk  of  large 
loss,  viz.,  he  may  distribute  his  investment  among  the  securities  of 
several  corporations  engaged  in  different  kinds  of  enterprise  and 
located  in  different  parts  of  a  country  or  in  different  countries.  Since 
stocks  may  be  issued  in  denominations  as  small  as  desired,  and  since 
a  stock  certificate  represents  an  undivided  interest  in  income  and 
assets,  it  must  be  obvious  that  the  total  loss  of  an  investment  dis- 
tributed widely  over  the  field  of  industry  and  apportioned  judiciously 
among  the  existing  industries  and  corporations  can  scarcely  occur 
short  of  a  catastrophe  involving  the  general  collapse  of  economic  ac- 
tivities. Furthermore,  the  simple  and  direct  means  of  transferring 
ownership  of  corporation  securities  makes  it  easy  for  an  investor,  if 
he  loses  faith  in  a  concern  in  whose  securities  he  has  invested,  or  if 
he  learns  of  some  other  concern  that  promises  better  returns,  to 
transfer  his  funds  to  another  enterprise.  Incidentally  this  ease  of 
liquidation  makes  corporation  securities  highly  acceptable  as  col- 
lateral for  loans.  Since  the  minimizing  of  risk  increases  the  value 
of  a  prospective  income,  all  these  attributes  of  the  corporation  op- 
erate to  offer  the  investor  a  larger  reward  for  saving  and,  in  conse- 
quence, tend  to  increase  the  amounts  saved. 

The  attributes  of  the  corporation  above  discussed  are  econom- 
ically advantageous  whether  the  scale  of  industry  be  large  or  small, 
but  in  the  field  of  large-scale  industry  the  corporation  possesses  a 
superiority  of  another  sort.  We  have  said  that  the  investor  may 
distribute  his  investment  over  a  wide  range;  the  converse  of  this 
statement  is  also  true,  viz.,  a  new  enterprise,  however  great,  may 
draw  funds  in  small  amounts  from  a  great  number  of  investors. 
This  makes  it  possible  to  gather  together  the  snmllest  accumula- 
tions as  fast  as  they  are  made  and  to  put  them  to  immediate  use  in 
those  new  enterprises  that  promise  the  greatest  gains  no  matter  how 
great  those  new  enterprises  may  be.  This  result  is  usually  accom- 
plished through  the  agency  of  savings  banks,  trust  companies,  in- 
surance companies,  and  other  financial  middlemen,  who  either  advise 
the  individual  in  his  choice  of  securities  or  else  make  the  investment 
in  their  own  names  from  funds  loaned  them  at  interest  by  the  saving 
public.  As  a  consequence  of  this  aptitude  of  the  corporation  for 
acaunulating  large  amounts  from  small  savings,  managerial  ability, 


194  CURRENT  ECONOMIC  PROBLEMS 

mechanical  labor,  and  machine  processes  may  be  so  co-ordinated  as 
to  enhance  to  the  greatest  possible  degree  the  productivity  of  the 
capital  saved. 

The  advantages  of  the  corporation  are  readily  seen,  then,  to  be 
both  interacting  and  cumulative.  The  productivity  of  capital  is  in- 
creased by  the  choice  and  co-ordination  of  productive  factors  ren- 
dered possible  by  large-scale  industry.  Accumulated  capital  is  put  to 
immediate  use  w^here  it  is  most  productive.  The  value  of  the  in- 
creased income  is  enhanced  by  the  limitation  and  distribution  of 
risks.  And  all  these  work  together  to  stimulate  and  to  accelerate 
investment. 


PROBLEMS   OF   THE   BUSINESS   CYCLE 

Under  the  simple  conditions  assumed  in  the  last  division,  the  problem 
of  the  organization  of  industrial  life  was  found  to  present  many  bewilder- 
ing aspects.-  But  placed  in  a  developing  society  it  becomes  doubly  bewilder- 
ing. None  of  the  economic  and  ethical  questions  which  were  noted  have  dis- 
appeared and  the  new  setting  adds  its  own  quota  of  problems. 

The  disturbing  elements  in  the  larger  situation  are  closely  associated  with 
those  regularly  recurring  phenomena  which  are  usually  called  "crises"  and 
"depressions."  It  was  once  held  that  these  played  havoc  with  "economic 
gear  and  cogs,"  throwing  the  "industrial  machine"  "out  of  joint,"  or  leaving 
it  "half  stalled."  Such  conditions  were  looked  upon  as  abnormal ;  they  were 
thought  to  create  problems  of  a  mechanical  character;  they  called  for  the 
services  of  the  industrial  mechanician.  But,  the  damage  once  repaired,  the 
"industrial  machine"  could  run  its  prosperous  course  until  another  catastrophe 
threw  "the  monkey-wrench  into  the  machine." 

Recent  analysis,  however,  has  shown  that  the  matter  is  not  so  simple  as 
all  this.  Two  closely  related  lines  of  movement  converge  to  produce  these 
disturbances.  The  first  is  the  development  of  the  industrial  system.  This 
involves  change  in  technique,  in  organization,  in  markets,  and  in  the  demand 
for  goods.  The  instruments  of  production  are  largely  specialized;  labor  is 
mobile  only  within  fixed  limits ;  and  only  newly  accumulated  capital  is  pos- 
sessed of  this  characteristic.  Capital  values  are  based  upon  the  earnings  an- 
ticipated in  view  of  the  known  and  predictable,  not  the  novel,  elements  in 
the  situation.  Particular  productive  goods  are  turned  out  with  an  expecta- 
tion that  they  will  be  used  in  the  production  of  particular  consumptive  goods. 
The  system  as  a  whole  has  far  tod  much  of  rigidity  successfully  and  im- 
mediately to  adapt  itself  to  those  radical  changes.  Yet  so  delicate  is  the 
system  that  anything  which  affects  a  particular  industry  is  certain  to  have 
an  appreciable  effect  upon  the  whole. 

The  second  is  "the  rhythm  of  business  activity,"  or  the  economic  cycle. 
A  depression,  characterized  by  conservatism  in  business  and  financial  activity, 
gradually  leads  to  an  improvement  in  conditions ;  as  business  expands  a 
spirit  of  optimism  arises,  and  stimulates  further  expansion ;  the  latter  reacts 
upon  the  feeling  of  optimism  and  causes  it  to  assume  a  tone  of  overconfidence, 
which  leads  to  "flush  times"  and  feverish  activity;  sooner  or  later  business 
overshoots  the  mark,  losses  occur,  and  perhaps  a  crisis,  contraction  is  neces- 
sary, and  a  depression  again  appears.  The  cycle  is  a  closed  one;  it  has  no 
logical  begining  and  no  consummation.  From  lean  to  fat  to  lean  years  it  ever 
runs  its  varied  round. 

But  the  situation  is  further  complicated  by  the  different  behavior  of  dif- 
ferent industries  and  industrial  agents  during  the  cycle.  If  the  price  scheme 
were  such  that  values  as  a  whole  could  be  quickly  readjusted  to  meet  new 
conditions,  much  trouble  might  be  avoided.  But  such  is  not  the  case.  Sheer 
necessity  alone  must  be  depended  upon  to  establish  the  lower  price  level.  But 
businesses  occupy  different  strategic  positions ;  the  baker  and  the  manufac- 
turer of  steel  rails  are  likely  to  be  affected  in  different  ways  by  price-making 
forces  at  different  stages  of  the  cycle.    The  man  with  fixed  salary  and  the 

195 


196  CURRENT  ECONOMIC  PROBLEMS 

employee  whose  contract  runs  in  terms  of  a  few  months  or  weeks  are  on  a 
different  footing.  The  result  is  that  all  values  do  not  go  up  or  go  down  to- 
gether. The  output  of  various  industries,  similarly,  do  not  increase  or  de- 
crease together.  Yet  all  of  these  industries  are  involved  in  a  delicate  system 
that  calls  for  nice  adjustments. 

It  is  these  movements  which  are  responsible  for  the  facts  that  no  two 
cycles — or  crises — are  alike ;  that  the  cycle  varies  greatly  in  length,  in  sweep, 
and  in  intensity,  and  that  a  myriad  of  dissimilar  theories  have  been  put  for- 
ward to  account  for  them,  few  of  which  contain  no  germ  of  truth. 

Its  spectacular  character  has  singled  out  the  crises  for  particular  atten- 
tion almost  to  the  exclusion  of  the  more  important  "flush  times"  and  depres- 
sions. It  is  not  surprising  that  antecedent  business  and  industrial  conditions 
are  often  overlooked,  and  crises  are  explained  in  terms  of  monetary 
standards  and  banking  systems.  Undoubtedly  our  banking  laws  in  the  past 
have  made  our  crises  unusually  severe.  The  elasticity  of  credit  and  note- 
issue  secured  by  the  recent  currency  act  should  do  much  to  relieve  financial 
stringency  when  a  crisis  arises.  It  should  also  do  something  to  prevent  its 
occurrence.  But  those  who  expect  it  to  cause  the  industrial  process  to  pur- 
sue a  more  even  course  are  likely  to  be  disappointed. 

The  violence  of  the  ebb  and  flow  of  business  activity  increases  tremend- 
ously the  difficulty  of  properly  organizing  society  through  price.  It  also 
reveals  grave  breaks  in  the  organization.  Capital  is  insecure  and  funded 
wealth  may  disappear  over  night.  The  cycle  is  associated  with  a  rhythm  of 
overemployment,  non-employment,  and  underemployment.  The  capitalists  and 
laborers  whose  products  satisfy  marginal  wants  are  put  in  a  very  precarious 
economic  position.  The  crisis  destroys  wealth,  specialized  talent,  and  organi- 
zation, all  of  which  must  be  replaced. 

The  economic  cycle  involves  the  whole  industrial  system.  No  simple 
device  will  arrest  the  violence  of  its  rhythm.  It  can  be  reached  only  by  a 
complex  of  many  complementary  measures.  //  we  are  to  control  the  cycle — 
we  must  learn  to  control  the  introduction  of  new  technique ;  the  demand  for 
goods  must  be  steadied;  we  must  develop  an  art  of  predicting  business  con- 
ditions ;  a  means  must  be  found  for  co-ordinating  recently  accumulated  cap- 
ital and  opportunities  for  investment ;  a  higher  sense  of  responsibility  in  mak- 
ing loans  must  be  developed  by  the  bankers;  a  feeling  of  responsibility  must 
be  engendered  in  the  promoter;  and  means  must  be  devised  for  checking 
the  speculative  mania. 

In  time,  as  our  very  rapid  industrial  development  slows  up,  the  sweep 
of  the  economic  cycle  may  be  expected  to  be  less  extreme.  Then  perhaps 
we  shall  hear  complaints  about  a  prosaic  age  that  has  no  speculative  prizes 
to  dangle  before  the  eyes  of  investors  to  tempt  them  to  take  chances  with 
unknown  opportunities.  Then,  perhaps,  men  will  point  to  the  "golden  age" 
of  the  past,  wheij  unexploited  opportunities  were  on  all  sides.  They  may 
go  so  far  as  to  conclude  that  our  violent  fluctuations  in  business  were  a  small 
price  to  pay  for  our  rapid  industrial  development. 

A.     THE  DELICATE  MECHANISM  OF  INDUSTRY 
96.     The  Spirit  of  Business  Enterprise^ 

BY    WESLEY    C.    MITCHELL 

Money  economy  has  attained  its  fullest  development  in  our  own 
day  under  the  influence  of  machine  production.    Its  essential  feature 

^Adapted  from  Business  Cycles,  21-26.  Copyright  by  the  author  (1913)- 
Published  by  the  University  of  California  Press. 


THE  BUSINESS  CYCLE  197 

is  that  economic  activity  takes  the  form  of  making  and  spending 
money  incomes.  Instead  of  producing  the  goods  their  families  re- 
quire, men  "make  money,"  and  with  their  money  incomes  buy  for 
their  own  use  goods  made  by  unknown  hands.  The  economic  com- 
fort or  misery  of  the  modem  family,  accordingly,  depends  not  upon 
its  efficiency  in  making  useful  goods  and  its  skill  in  husbanding  sup- 
plies, but  upon  its  ability  to  command  an  adequate  money  income 
and  upon  its  pecuniary  thrift.  Even  in  years  when  crops  are  short 
and  mills  are  idle,  the  family  with  money  need  not  go  cold  or 
hungry.  But  the  family  without  money  leads  a  wretched  life  even 
in  years  of  abundance.  Always  the  elaborate  co-operative  process 
by  which  a  nation's  myriad  workers  provide  for  the  meeting  of  each 
other's  needs  is  brought  into  precarious  dependence  upon  the  factors 
which  determine  the  prospects  of  making  money. 

For  purposes  of  making  money  men  have  gradually  developed 
the  modern  business  enterprise — an  organization  which  seeks  to 
realize  pecuniary  profits  upon  an  investment  of  capital  by  a  series 
of  contracts  for  the  purchase  and  sale  of  goods  in  terms  of  money. 
Business  enterprises  of  the  full-fledged  type  have  come  to  occupy 
almost  the  whole  field  in  finance,  wholesale  trade,  railway  and 
marine  transportation.  They  dominate  mining,  lumbering  and 
manufacturing.  In  retail  trade  they  play  an  important  role,  and  in 
agriculture  they  have  secured  a  foothold.  But,  despite  this  wide 
extension  of  business  aims  and  methods,  there  still  remain  broad 
differences  of  degree  between  the  enterprises  typical  of  the  several 
fields  of  effort.  In  size,  in  complexity  of  organization,  in  dependence 
on  the  money  market,  in  singleness  of  business  aim,  the  typical  farm 
and  the  small  retail  store  are  not  comparable  with  the  typical  cor- 
porate enterprises  of  transportation,  mining  and  finance. 

This  uneven  development  of  business  organization  in  different 
fields  is  highly' important.  For  it  is  within  the  circles  of  full-fledged 
business  enterprises  that  the  alternations  of  prosperity  and  depres- 
sion appear  most  clearly.  Branches  of  trade  which  are  not  organized 
elaborately  are  much  less  susceptible  both  to  the  stimulus  of  pros- 
perity and  to  the  inhibition  of  depression.  In  country  districts,  for 
example,  the  pace  of  activity  is  subject  to  seasonal  but  not  to 
cyclical  changes  such  as  occur  in  factory  towns.  The  farmers  are 
never  thrown  out  of  work  except  by  bad  weather,  and  they  are 
never  overrushed  except  by  seed-time  and  harvest.  In  other  words, 
the  scope  and  intensity  of  prosperity  and  depression  appear  to  de- 
pend upon  the  extent  and  the  perfection  of  business  organization. 

No  less  important  is  the  thoroughgoing  interdependence  of 
business  enterprises.     As  a  plant  concerned  with  the  handling  of 


198  CURRENT  ECONOMIC  PROBLEMS 

commodities,  the  typical  enterprise  is  one  cog  in  a  great  machine. 
Our  industries  are  carried  on  by  sets  of  nominally  independent 
plants  which  pass  on  goods  to  each  other.  For  example,  one  series 
embraces  wheat-growers,  grain-carrying  railways,  elevators,  flour 
mills,  wholesale  dealers  in  provisions,  bakeries,  and  retail  distribut- 
ing agencies.  Each  set  of  members  in  such  a  series  is  dependent 
upon  the  preceding  set  for  its  chief  supplies  and  upon  the  succeeding 
set  for  its  chief  vent.  Further,  no  industrial  series  is  self-sufficing. 
Each  set  of  enterprises  in  our  example,  from  the  farms  to  the  retail 
agencies,  is  industrially  dependent  on  other  industrial  series  which 
equip  it  with  buildings,  machines,  fuel,  office  supplies,  etc.  A  peculiar 
mutual  dependence  exists  between  the  whole  mass  of  industries  and 
the  railways.  Coal-mining  and  the  steel  trade  also  touch  practically 
every  industrial  establishment.  Since  the  transfers  of  goods  are 
maintained  by  contracts  of  purchase  and  sale,  each  enterprise  is  af- 
fected by  the  fortunes  of  its  customers,  its  competitors,  and  the 
purveyors  of  its  supplies.  Financial  interdependence  is  also  in  part 
but  another  aspect  of  the. industrial  and  commercial  bonds.  Compli- 
cated relationships  of  debtor  and  creditor  arise  from  the  purchase 
and  sale  of  goods  on  credit,  and  make  the  disaster  of  one  enterprise 
a  menace  to  many. 

A  business  enterprise  may  participate  in  the  work  of  providing 
the  nation  with  useful  goods  or  it  may  not.  For  there  are  divers 
ways  of  making  money  which  are  positively  detrimental  to  future 
welfare.  But  it  is  more  important  that  even  the  enterprises  which 
are  making  useful  goods  do  so  only  so  far  as  the  operation  is  ex- 
pected to  serve  the  primary  business  end  of  making  profits.  Any 
other  attitude  is  impracticable  under  the  system  of  money  economy. 
For  the  man  who  allowed  his  humanitarian  interests  to  control  his 
business  policy  would  soon  be  forced  out  of  business.  From  the 
business  standpoint  the  useful  goods  produced  are  merely  by- 
products of  the  process  of  earning  dividends.  \  clear  appreciation 
of  this  fact  is  necessary  to  an  understanding  of  the  relations  between 
industry,  commerce,  and  business.  For  the  well-being  of  the  com- 
munity, efficient  industry  and  commerce  are  vastly  more  important 
than  successful  money-making.  A  panic  which  did  not  interrupt 
the  making  and  distributing  of  wares  desired  by  the  community 
would  be  no  great  disaster.  But  the  whip-hand  belongs  to  business. 
In  practice,  industry  and  commerce  are  thoroughly  subordinated 
to  it.  The  ebb  and  flow  of  contemporary  economic  activity  is  pri- 
marily concerned  with  the  phenomena  of  business  traffic — that  is, 
of  money-making. 

Business  prosperity  depends  upon  the  factors  which  control 
present  and  prospective  profits,  together  with  present  and  prospec- 


THE  BUSINESS  CYCLE  199 

tive  ability  to  meet  financial  obligations.  Profits  are  made  by  con- 
nected series  of  purchases  and  sales.  Accordingly  the  margins  be- 
tween the  prices  at  which  goods  can  be  bought  and  sold  are  the 
fundamental  condition  of  business  prosperity.  Just  as  the  ever- 
recurring  changes  within  the  system  of  prices  aflfect  business  pros- 
perity and  through  it  national  welfare,  so  do  changes  in  national 
welfare  and  business  prosperity  react  upon  prices.  A  period  of 
business  expansion  causes  an  interminable  series  of  readjustments 
in  the  prices  of  various  goods.  These  readjustments  in  turn  alter 
the  pecuniary  prospects  of  the  business  enterprisers  which  buy  or 
sell  the  commodities  affected,  and  thereby  start  new  changes  in 
business  prosperity.  With  the  latter  changes  the  process  begins 
anew.  Prices  once  more  undergo  an  uneven  readjustment,  pros- 
pects of  profit  become  brighter  or  darker,  business  prosperity  waxes 
or  wanes,  prices  feel  the  reflex  influence  of  the  new  business  situa- 
tion--and  so  on  without  end. 


97.    The  Interdependence  of  Prices^ 

BY   WESLEY  C.    MITCHELL 

The  prices  ruling  at  any  given  time  for  an  infinite  variety  of 
commodities,  services,  and  rights  which  are  being  bought  and  sold 
constitute  a  system. 

The  prices  which  retail  merchants  charge  for  consumers'  com- 
modities afford  the  best  starting-point  for  a  survey  of  this  system. 
These  prices  are  loosely  connected  with  each  other ;  for  an  advance 
in  the  price  of  any  commodity  usually  creates  an  increased  demand 
for  other  comniodities  which  can  be  used  as  substitutes,  and  thus 
favors  an  advance  in  the  price  of  the  substitutes.  They  are,  how- 
ever, more  closely  related  to  the  prices  for  the  same  goods  which 
shopkeepers  pay  to  wholesale  merchants,  and  the  latter  to  manu- 
facturers. There  is,  of  course,  wide  diversity  between  the  number 
of  members  and  in  the  margins  between  the  successive  prices  in  the 
series.  These  margins  are  usually  wider  in  retail  than  in  wholesale 
trade;  wider  on  perishable  goods  than  on  durable  staples;  wider 
when  the  manufacturer  sells  directly  to  the  consumer  than  when 
merchants  intervene ;  wider  when  a  monopolist  can  fix  prices  in  his 
own  favor,  etc.  But  these  diversities  are  themselves  measurably 
regular,  so  that  the  margins  between  the  successive  prices  in  the 
series  for  each  kind  of  commodities  form  a  tolerable  business  basis 

^Adapted  from  Business  Cycles,  27-32.  Copyright  by  the  author  (1913). 
Published  by  the  University  of  California  Press. 


200  CURRENT  ECONOMIC  PROBLEMS 

for  making  profits  out  of  the  process  of  supplying  the  community 
with  goods. 

The  business  men  engaged  in  squeezing  money  profits  out  of 
these  price-margins  are  seldom  able  to  keep  the  whole  difference 
between  buying  and  selling  prices.  From  retailers  to  manufacturers 
they  require  various  commodities,  services,  and  rights  for  the  effi- 
cient control  of  their  operations.  For  such  producers'  goods  they 
have  to  pay  out  prices  which  eat  into  the  profit-margins  of  the  goods 
in  which  they  deal.  The  most  important  classes  of  producers'  goods 
are  raw  materials,  buildings  and  machinery,  labor,  loans,  leases, 
transportation,  insurance,  and  advertising.  It  is  difficult  in  many 
of  these  cases  to  connect  directly  the  prices  which  figure  as  costs 
with  the  margins  upon  which  particular  commodities  change  hands. 
For  the  cost  prices  are  usually  paid  for  the  pecuniary  advantage  of 
the  enterprise  as  a  whole,  and  the  accruing  benefits  extend  to  many 
transactions  and  cover  a  long  time.  The  like  is  true  of  manufac- 
turers. 

With  the  exception  of  labor,  producers'  goods  are  provided,  like 
consumers'  goods,  by  business  enterprises  operating  on  the  basis 
of  margins  between  buying  and  selling  prices.  Hence  the  price 
of  a  given  goods  is  related  not  only  to  the  prices  of  the  consumers' 
goods  in  the  production  of  which  it  is  used,  but  also  to  the  prices  of 
the  various  other  producers'  goods  employed  in  its  own  manufac- 
ture. Thus  the  prices  of  producers'  goods  form  the  beginnings  of 
new  series  of  relationships  which  run  backward  with  countless 
ramifications  and  never  reach  definite  stopping-points.  Even  the 
prices  of  raw  materials  in  the  hands  of  the  ultimate  producers  are 
related  intimately  to  the  prices  of  the  labor,  current  supplies,  ma- 
chinery, buildings,  land,  loans,  etc.,  which  the  farmers,  miners,  etc., 
employ. 

The  price  of  labor  may  seem  to  bring  the  series  to  a  definite  stop 
at  least  at  one  point.  For  in  most  cases  the  laborer  does  not  have 
a  business  attitude  toward  the  production  of  his  own  energy.  But 
the  price  which  the  laborer  can  command  is  connected  with  the 
prices  of  the  consumers'  goods  which  established  habit  has  made 
into  a  standard  of  living.  At  this  point,  therefore,  analysis  of  the 
interrelations  between  prices  brings  us,  not  to  a  full  stop,  but  back 
to  our  starting-point,  the  prices  of  consumers'  goods. 

We  must  also  take  account  of  the  prices  of  business  enterprises 
themselves.  Occasionally  established  business  enterprises  are  sold 
outright.  But  the  most  important  transactions  of  this  class  are 
stock-exchange  dealings.  That  the  prices  of  whole  business  enter- 
prises or  oi  shares  in  them  are  intimately  related  to  the  prices  which 
have  been  discussed  is  clear ;  for  these  prices  depend  primarily  upon 


THE  BUSINESS  CYCLE  201 

present  and  prospective  profits,  and  the  latter  upon  price-margins 
and  the  volume  of  business  transacted. 

There  remains  for  consideration  the  prices  paid  for  heteroge- 
neous personal  services.  These  include  domestic  service,  n>edical 
attendance,  instruction,  many  forms  of  amusement,  etc.  The 
furnishing  of  such  services  contrasts  with  business  traffic  in  con- 
sumers' goods,  loans,  transportation,  etc.  For  systematic  organiza- 
tion has  not  been  developed  to  so  high  a  point,  business  motives  do 
not  have  such  unrestricted  scope,  and  the  wares  are  not  standardized 
in  equal  measure.  Moreover,  the  prices  people  are  willing  to  pay 
are  based  rather  on  personal  needs  and  income  than  on  calculated 
chances  of  profit.  The  prices  of  these  services  therefore  form  the 
most  loosely  organized  and  irregular  division  of  the  system  of 
prices. 

This  classification  of  prices  assists  in  seeing  the  relations  which 
bind  all  prices  together  and  make  them  a  system.  Many  price  rela- 
tions are  already  sufficiently  clear,  but  several  lines  of  relationship 
should  be  indicated  more  definitely. 

1.  On  the  side  of  demand  almost  every  good  has  its  possible 
substitutes.  Through  the  continual  shifting  of  demand  changes  in 
the  price  of  one  commodity  are  often  communicated  to  the  prices 
of  its  substitutes,  from  the  latter  to  the  prices  of  their  substitutes, 
and  so  on.  An  initial  change,  however,  usually  becomes  smaller  as 
it  spreads  out  in  widening  circles. 

2.  Similarily,  on  the  side  of  supply,  almost  every  good  has 
genetic  relationships  with  other  goods,  made  of  the  same  materials, 
or  supplied  by  the  same  set  of  enterprisers.  Particularly  important 
are  the  genetic  relationships  based  upon  the  use  of  the  same  pro- 
ducers' goods  in  many  lines  of  trade.  Floating  capital,  transporta- 
tion, labor,  machinery,  etc.,  enter  into  the  cost  of  most  commodities. 
Accordingly  a  changed  price  established  for  one  of  these  common 
producers'  goods  in  any  important  use  may  extend  to  a  great  diver- 
sity of  other  uses,  and  produce  further  price  disturbances. 

3.  Closely  connected  with  this  genetic  relationship  through  com- 
mon producers'  goods  is  the  relationship  through  business  compe- 
tition, both  actual  and  potential.  In  so  far  as  effective  competition 
exists,  a  state  of  price-margins  which  makes  any  one  trade  more  or 
less  profitable  than  other  trades  in  the  same  market  cannot  long 
maintain  itself. 

4.  Present  prices  are  affected  by  prices  of  the  recent  past  and 
the  anticipated  prices  of  the  near  future.  Indeed,  present  prices  are 
largely  determined  by  past  bargains,  with  established  time  contracts. 
Thus  the  price  system  has  no  definable  limits  in  time.    No  analysis 


202  .  CURRENT  ECONOMIC  PROBLEMS 

can  get  back  to  the  ultimate  term  in  the  endless  series  of  bargains 
which  helped  to  make  the  prices  of  the  present. 

5.  Nor  has  the  series  of  prices  any  logical  beginning  or  end. 
At  whatever  point  analysis  may  start  to  follow  the  interlocking 
links,  to  that  point  analysis  will  come  if  it  proceeds  far  enough. 
The  system  of  prices  is  an  endless  chain. 

Prices,  then  form  a  highly  complex  system  of  many  parts  con- 
nected with  each  other  in  diverse  ways,  a  system  infinitely  flexible 
in  detail,  yet  stable  in  the  essential  balance  of  its  interrelations,  a 
system  like  a  living  organism  in  its  ability  to  recover  from  the  serious 
disorders  into  which  it  periodically  falls. 

The  most  significant  thing  about  it  is  the  function  it  performs 
in  the  economic  life  of  nations.  It  serves  as  a  social  mechanism 
for  carrying  on  the  processes  of  providing  goods.  For  prices  are 
the  means  which  make  possible  the  elaborate  exchanges,  and  the 
consequent  specialization  which  characterizes  the  modern  world. 
They  are  the  source  from  which  family  income  is  derived,  and  the 
means  by  which  goods  are  obtained  for  family  consumption;  for 
both  income  and  cost  of  living — the  two  jaws  of  the  vise  in  which 
the  modern  family  is  squeezed — are  aggregates  of  prices.  Prices 
also  render  possible  the  rational  direction  of  economic  activity  by 
accounting,  for  accounting  is  based  upon  the  principle  of  represent- 
ing all  the  heterogeneous  commodities,  services,  and  rights  with 
which  a  business  enterprise  is  concerned  in  terms  of  money  price. 
Most  important  of  all,  the  margins  between  different  prices  within 
the  system  hold  out  that  hope  of  pecuniary  profit  which  is  the 
motive  power  that  drives  our  business  world. 

98.     The  Sensitive  Mechanism  of  Credit' 

BY  HAROI.D  G.  MOULTON 

It  has  become  almost  a  trite  saying  that  credit  is  the  very  life- 
blood  of  commerce  and  that  without  its  wonderful  assistance  the 
enormous  business  of  the  modern  world  would  be  quite  impossible. 
It  is  a  commonplace,  also,  that  the  credit  structure  is  a  very  uncer- 
tain mechanism,  one  that  periodically .  expands  to  a  breaking-point 
and  involves  hundreds  of  businesses  in  financial  ruin,  and  indirectly 
demoralizes  the  commerce  of  an  entire  country.  The  precise  manner 
in  which  this  credit  structure  is  built  up,  however,  with  its  intricate 
and  complicated  interrelations,  is  not  usually  clearly  understood.  It 
is  the  purpose  of  the  following  analysis  to  trace  these  intricate 

'Adapted  from  an  article  with  the  foregoing  caption' in  a  volume  as  yet 
unpublished. 


THE  BUSINESS  CYCLE  203 

relations,  and  show  the  complicated  interdependences  in  the  fabric 
of  commercial  credit. 

Commerce  relates  to  the  movement  of  goods  from  the  hands  of 
those  who  perform  the  first  operation  in  production  to  their  final 
resting-place  with  the  ultimate  consumers.  Commercial  credit  con- 
nects itself,  therefore,  with  the  various  purchases  and  sales  that 
are  made  in  the  slow  process  of  marketing  commodities.  The  nature 
and  place  of  credit  in  the  marketing  process  may  perhaps  best  be 
made  clear  by  assuming  first  a  society  that  does  business  on  a  cash 
basis  only. 

To  illustrate  the  process  let  us  begin  with  some  raw  materials 
in  the  form  of  iron  ore  and  coal  which  are  to  be  manufactured  into 
farm  machinery  for  sale  to  farmers.  These  raw  materials  normally 
pass  through  the  hands  of  the  following  classes  of  business  men: 
(i)  the  manufacturer  of  machinery;  (2)  the  wholesale  dealer;  (3) 
the  retail  merchant  from  whom  they  are  purchased  by  the  farmer. 
In  the  absence  of  credit  the  producer  of  raw  materials  would  have 
to  possess  enough  capital  to  defray  the  cost  of  producing  these 
materials.  He  would  sell  them  for  cash  to  the  manufacturer,  who 
pays  for  them  with  ready  money.  In  turn,  the  manufacturer,  after 
having  converted  the  materials  into  finished  machines,  sells  them  in 
a  new  form  to  the  wholesale  dealer,  who  pays  for  them  out  of  funds 
accumulated  for  the  purpose.  The  wholesaler  next  passes  them  on 
to  the  retailer  for  cash;  and  the  retailer  disposes  of  them  to  the 
farmer  for  cash.  In  each  case  cash  accumulated  and  in  hand  ready 
for  payment  is  the  significant  feature.  We  have  thus  far,  however, 
but  half  completed  the  commercial  circle. 

The  farmer  does  not  purchase  the  machinery  as  an  end  in  itself. 
With  it  he  produces  crops  for  sale.  He  sells  his  annual  produce 
to  a  local  dealer  for  cash ;  the  local  dealer  sells  these  products  to  the 
commission  merchant  for  cash;  the  commission  merchant  passes 
them  on  for  cash  to  a  retail  store;  and  the  storekeeper  sells  them 
for  cash  to  his  customers,  who  happen  to  be,  let  us  assume,  the 
laborers  in  the  mines  of  iron  and  coal  who  were  the  original  pro- 
ducers of  the  raw  materials  that  went  to  the  making  of  farm  ma- 
chinery.   Thus  we  have  the  complete  round  of  production. 

In  the  foregoing  analysis  we  have  assumed  each  sale  to  be  for 
cash;  no  one  waits  for  his  payments,  and  all  keep  the  slate  clear 
as  they  go.  With  such  a  method  there  is  little  danger  of  a  general 
breakdown.  If  a  purchaser  has  not  the  cash  with  which  to  pay  for 
goods,  he  is  refused  the  sale.  Hence  the  seller  is  never  dependent 
upon  the  future  solvency  of  his  purchaser.  Sales  may  be  restricted 
by  a  slackening  of  the  industrial  process ;  but  there  are  never  matur- 
ing obligations  to  meet,  and  there  is  never  a  chain  of  failures  each 


204  CURRENT  ECONOMIC  PROBLEMS 

due  to  the  previous  one.  Let  us  now  introduce  credit  into  the  system 
as  outHned  above. 

It  is  evident  that  the  farmer  who  buys  the  farm  machinery  is 
the  ultimate  demander  of  the  raw  materials  purchased  by  the  manu- 
facturer, and  of  course  of  the  finished  machines  handled  by  the 
wholesaler  and  retailer  respectively.  In  final  analysis  the  farmer's 
cash  pays  for  the  labor  of  the  workers  in  the  mines  of  iron  and 
coal.  Or,  traveling  around  the  circuit  in  the  opposite  direction, 
it  is  the  laborer's  cash  that  really  pays  for  crops  of  the  farmer  that 
have  been  produced  by  the  farm  machinery.  Without  credit,  how- 
ever, it  is  impossible  for  the  precise  cash  paid  by  the  farmer  to  the 
retailer  to  be  used  by  the  latter  in  paying  the  wholesaler  and  so  on 
up  to  the  producer  of  the  raw  materials.  In  introducing  credit  into 
this  system  it  will  be  necessary  to  assume  for  the  moment  a  situa- 
tion that  does  not  represent  the  actual  state  of  affairs.  The  correc- 
tive will  be  given  in  the  paragraph  following. 

Let  us  assume  that  the  producer  of  raw  materials  possesses 
enough  to  produce  $10,000  worth  of  raw  materials,  paying  his  labor- 
ers in  advance.  Now  let  us  assume  he  sells  these  materials  to  the 
manufacturer  on  twelve  months'  time,  that  is,  he  agrees  to  wait 
twelve  months  for  his  pay.  The  manufacturer  in  the  course  of  three 
months  converts  these  raw  materials  into  finished  machinery  and 
sells  the  machines  on  nine  months'  time  to  the  wholesaler.  In  a 
month  the  wholesaler  disposes  of  the  machinery,  letting  the  retailer 
have  eight  months  in  which  to  pay.  In  another  month  the  retailer 
sells  the  machines  to  a  farmer,  agreeing  to  wait  seven  months.  Four 
months  later  the  farmer  sells  his  crops  on  three  months'  time  to  a 
local  dealer,  who  sells  them  in  a  month  to  a  commission  merchant 
on  two  months'  time ;  the  commission  merchant  in  turn  selling  on 
one  month's  time  to  a  retail  store ;  and  the  retailer  disposes  of  them 
within  a  month  to  the  laborers  who  work  in  the  mines  for  cash 
received  by  them  for  producing  raw  materials.  Cash  would  thus  be 
paid  to  the  retailer  of  farm  produce  just  twelve  months  from  the 
date  of  the  first  sale  of  the  raw  materials ;  and  if  this  cash  should 
be  passed  on  promptly  through  the  hands  of  the  commission  mer- 
chant, local  dealer,  farmer,  retailer,  wholesaler  and  manufacturer 
to  the  original  producer,  it  can  liquidate  all  the  obligations  as  per 
schedule. 

In  actual  practice,  however,  twelve  months  would  be  a  long  time 
for  the  producer  to  wait  for  his  payment.  Similarly  the  periods  of 
nine,  eight  and  seven  months  would  be  too  long  for  the  others  to 
wait;  for  further  production  would  be  more  or  less  halted  mean- 
while. In  practice,  therefore,  credit  extensions  are  for  much  shorter 
periods,  usually  from  one  to  four  months,  whether  it  be  the  pro- 


THE  BUSINESS  CYCLE  205 

ducer  of  raw  materials,  the  manufacturer,  or  the  middlemen.  How 
is  this  made  possible? 

The  manufacturer,  for  instance,  may  give  his  note  to  the  pro- 
ducer for  three  months,  and  pay  as  soon  as  he  sells  to  the  whole- 
saler. The  question  now  is,  where  does  the  wholesaler  get  the 
funds  with  which  to  pay ;  does  he  not  have  to  wait  until  the  retailer 
has  disposed  of  the  goods?  This  is  where  the  banks  come  to  the 
assistance  of  commerce.  The  wholesaler  sells  to  the  retailer  on 
time,  but  instead  of  delaying  his  payment  to  the  manufacturer,  he 
procures  a  loan  from  his  bank,  giving  as  security  therefor  the  notes 
received  from  the  retailer.  With  this  loan  the  wholesaler  may  pay 
the  manufacturer  at  once.  The  loan  from  the  bank  is  repaid  when 
the  retailer  settles  with  the  wholesaler.  The  bank  therefore  under- 
takes the  waiting  instead  of  the  dealer. 

In  the  foregoing  illustration  it  was  the  wholesaler  who  procured 
the  loan  from  the  bank.  It  may  in  fact,  however,  be  any  one  or 
several  in  the  chain  of  buyers  and  sellers.  The  manufacturer,  for 
instance,  instead  of  asking  the  wholesaler  to  pay  cash  could  accept 
a  promissory  note",  and  then  sell  this  note  to  a  bank  for  cash,  that 
is,  have  it  discounted.  Or  the  retailer  might  borrow  from  a  bank 
and  pay  cash  to  the  wholesaler.  Similarly,  on  the  other  side  of  the 
circle,  the  commission  merchant  may  pay  cash  to  the  local  dealer, 
borrowing  from  a  bank  for  the  purpose;  and  the  retailer  of  the 
foodstuffs  may  sell  to  his  customers  on  credit,  and  borrow  from  a 
bank  while  waiting  for  his  returns.  It  is  quite  immaterial  which 
party  procures  the  assistance  of  the  banks ;  though  in  practice  it 
usually  becomes  the  custom  for  only  certain  ones  in  the  chain  to  do 
so.  In  this  country  it  is  usually  the  manufacturers  and  the  commis- 
sion merchants  who  pay  cash. 

The  commercial  structure  which  we  have  thus  outlined  is  seen 
to  be  very  closely  interrelated;  and  it  is  because  of  this  interde- 
pendence of  factors  that  a  "credit  breakdown"  has  such  far-reaching 
consequences.  The  credit  circle  cannot  be  disrupted  at  any  point 
without  more  or  less  seriously  disrupting  the  entire  system.  Sup- 
pose, for  instance,  that  a  long  drouth  or  heavy  rains  ruin  the  agri- 
cultural produce  and  render  it  impossible  for  the  farmer  to  pay 
the  retailer  as  promised.  This  affects  the  retailer's  ability  to  pay 
the  wholesaler,  and  in  turn  the  wholesaler's  ability  to  pay  the  manu- 
facturer, or  his  bank,  and  so  on  around  the  entire  circle.  Or  sup- 
pose a  strike  in  the  manufacturing  establishment  should  prevent  the 
manufacturer  from  filling  his  selling  orders.  It  becomes  impossible 
for  him  to  pay  the  producer  on  time ;  and  the  latter  in  turn  becomes 
unable  to  meet  his  obligations  as  they  become  due.  The  halting  of 
the  manufacturing  process  may  compel  the  producer  to  restrict  his 


2o6  CURRENT  ECONOMIC  PROBLEMS 

output  of  raw  materials,  and  hence  discharge  laborers.  This  affects 
the  sales  of  the  retailer  of  the  farm  produce,  and  hence  his  ability 
to  pay  the  commission  merchant,  and  so  on  around  the  circle. 
Numerous  other  examples  of  this  sort  might  obviously  be  given. 

Whenever  there  is  a  break  in  the  delicate  structure  at  any  point, 
there  is  always  an  attempt  to  stop  the  gap  by  calling  upon  the  banks 
for  assistance.  Whoever  finds  himself  unable  to  pay  on  time  rushes 
to  his  banker  for  a  loan.  Indeed  if  there  is  but  a  well-grounded  fear 
that  difficulties  are  likely  to  come,  dealers  often  go  at  once  to  the 
banks  for  loans  in  anticipation  of  trouble  to  come.  Without  going 
into  an  analysis  of  the  responsibility  thus  placed  upon  the  banking 
institutions,  it  should  be  emphasized  that  the  success  with  which  a 
community  may  pass  through  a  period  of  disrupted  credit  operations 
depends  upon  the  ability  of  the  banks  to  expand  their  own  credit 
sufficiently  to  tide  the  commercial  world  over  the  emergency. 

99.     The  "Planlessness"  of  Production* 

BY  WESLEY  C.   MITCHELL 

With  technical  experts  to  guide  the  making  of  goods,  business 
experts  to  guide  the  making  of  money,  lenders  to  review  all  plans 
requiring  large  investments,  and  government  to  care  for  the  public 
welfare,  it  may  seem  that  the  money  economy  provides  a  staff  and 
a  procedure  adequate  to  the  task  of  directing  economic  activity,  vast 
and  difficult  though  that  task  may  be.  This  impression  is  strength- 
ened by  observing  that  each  class  of  business  leaders  is  spurred  to 
efficiency  and  deterred  from  recklessness  by  danger  of  pecuniary 
loss.  The  engineer  who  blunders  is  discharged,  the  enterpriser  who 
blunders  goes  into  bankruptcy,  the  lender  who  blunders  loses  his 
money.  Thus  the  guides  who  misdirect  the  industrial  army  are 
always  being  eliminated.  On  the  other  hand,  those  who  succeed  are 
constantly  being  promoted  to  posts  of  wider  power. 

With  this  powerful  stimulus  of  individual  efficiency,  the  money 
economy  unites  an  opportunity  for  co-operation  on  a  grand  scale. 
By  paying  money  prices,  the  leaders  can  enlist  the  aid  of  laborers 
who  contribute  work  of  all  kinds,  of  expert  advisers  who  contribute 
special  knowledge,  of  landlords  who  contribute  the  uses  of  their 
property,  and  of  investors  who  contribute  the  uses  of  their  funds. 
And  all  these  classes  can  be  made  to  work  in  disciplined  order 
toward  the  execution  of  a  single  plan. 

The  union  between  encouragement  of  individual  efficiency  and 
opportunity  for  wide  co-operation  is  the  great  merit  of  the  money 

*Adapted  from  Business  Cycles,  37-40.  Copyright  by  the  author  (X9i3)' 
Published  by  the  University  of  California  Press. 


TEE  BUSINESS  CYCLE  207 

economy.  It  provides  a  basis  for  what  is  unquestionably  the  best 
system  for  directing  economic  activity  which  men  have  yet  practiced. 
Nevertheless,  the  system  has  serious  Hmitations. 

1.  The  money  economy  provides  for  effective  co-ordination  of 
effort  within  each  business  enterprise,  but  not  for  effective  co-ordi- 
nation of  effort  among  independent  enterprises. 

The  two  schemes  differ  in  almost  all  respects.  Co-ordination 
within  the  enterprise  is  the  result  of  careful  planning  by  experts; 
co-ordination  among  independent  enterprises  cannot^  be  said  to  be 
planned  at  all ;  rather  is  it  the  unplanned  result  of  natural  selection 
in  a  struggle  for  business  survival.  Co-ordination  within  an  enter- 
prise has  a  definite  end — the  making  of  profits;  co-ordination 
among  independent  enterprises  has  no  definite  end,  aside  from  the 
conflicting  aims  of  the  several  units.  Co-ordination  within  an  enter- 
prise is  maintained  by  a  single  authority  possessed  of  power  to  carry 
its  plans  into  effect;  co-ordination  among  independent  enterprises 
depends  upon  many  different  authorities  contending  with  each  other, 
and  without  power  to  enforce  a  common  program  except  so  far  as 
one  can  persuade  or  coerce  others.  As  a  result  of  these  conditions 
co-ordination  within  an  enterprise  is  characterized  by  economy  of 
effort;  co-ordination  among  independent  enterprises  by  waste. 

In  detail,  then,  economic  activity  is  planned  and  directed  with 
skill ;  but  in  the  large  there  is  neither  general  plan  nor  general  direc- 
tion. The  charge  that  "capitalistic  production  is  planless"  therefore 
contains  both  an  important  element  of  truth  and  a  large  element  of 
error.  Civilized  nations  have  not  yet  developed  sufficient  intelligence 
to  make  systematic  plans  for  the  sustenance  of  their  populations ; 
they  continue  to  rely  upon  the  badly  co-ordinated  efforts  of  private 
initiative.  Marked  progress  has  been  made,  however,  in  the  skill 
with  which  the  latter  efforts  are  directed. 

2.  But  the  managerial  skill  of  business  enterprises  is  devoted 
to  money-making.  If  the  test  of  efficiency  in  the  direction  of 
economic  activity  be  that  of  determining  what  needs  are  most  im- 
portant for  the  common  welfare  and  then  satisfying  them  in  the 
most  economical  manner,  the  present  system  is  subject  to  a  further 
criticism.  For,  in  nations  where  a  few  have  incomes  sufficient  to 
gratify  trifling  whims  and  where  many  cannot  buy  things  necessary 
to  maintain  their  own  efficiency,  it  can  hardly  be  argued  that  the 
goods  which  pay  best  are  most  needed.  It  is  no  fault  of  business 
leaders  that  they  take  prospective  profits  as  their  guide.  They  are 
compelled  to  do  so;  for  the  men  who  mix  too  much  philanthropy 
with  business  soon  cease  to  be  leaders.  But  a  system  of  economic 
organization  which   forces  men  to  accept  so  artificial  an  aim  as 


2o8  CURRENT  ECONOMIC  PROBLEMS 

pecuniary  profit  cannot  guide  their  efforts  with  certainty  toward 
their  own  ideals  of  public  welfare. 

3.  Even  from  the  point  of  view  of  business,  prospective  profit 
is  an  uncertain  flickering  light.  Profits  depend  upon  two  variables, 
on  margins  between  selling  and  buying  prices,  and  on  the  volume  of 
trade.  These  are  related  to  each  other  in  unstable  fashion  and  each 
subject  to  perturbations  from  a  multitude  of  unpredictable  causes. 
That  the  system  of  prices  has  its  own  order  is  clear;  but  it  is  not 
less  clear  that  the  order  fails  to  afford  certainty  of  business  success. 
Men  of  long  experience  and  proved  sagacity  often  find  their  calcula- 
tions upset  by  conjunctures  which  they  could  not  anticipate.  Thus 
the  money  economy  confuses  the  guidance  of  economic  activity  by 
interjecting  a  large  element  of  chance  into  every  business  venture. 

4.  The  hazards  to  be  assumed  grow  greater  with  the  extent  of 
the  market  and  with  the  time  that  elapses  between  the  initiation  and 
the  fruition  of  an  enterprise.  But  the  progress  of  industrial  tech- 
nique is  steadily  widening  markets,  and  requiring  heavier  invest- 
ments of  capital  for  future  production.  Hence  the  share  in  eco- 
nomic leadership  that  falls  to  lenders,  that  of  receiving  the  various 
chances  offered  them  for  investment,  presents  increasing  difficulties. 
And  a  large  proportion  of  these  investors,  particularly  the  lenders 
on  long  time,  lack  the  capacity  and  the  training  for  the  successful 
performance  of  such  work. 

These  defects  in  the  system  of  guiding  economic  activity  and 
the  bewildering  complexity  of  the  task'  itself  allow  the  processes  of 
economic  life  to  fall  into  those  recurrent  disorders  which  constitute 
crises  and  depressions. 


B.    THE  ECONOMIC  CYCLE 
100.     The  Periodicity  of  Commercial  Crises^ 

BY  J.  S.   NICHOLSON 

Attention  has  often  been  called  to  the  periodicity  of  crisis.  After 
the  occurrence  of  a  crisis,  there  is,  in  general,  a  period  of  depression 
with  restricted  confidence  and  want  of  enterprise.  That  the  de- 
pression is  real,  in  the  sense  of  affecting  the  producing  and  consum- 
ing powers  of  the  people,  is  shown  by  various  kinds  of  statistics. 
There  is,  in  general,  a  falling  off  in  the  employment  of  labor  and 
an  increase  in  pauperism ;  as  regards  capital,  falling  profits  are 
shown  by  the  income  tax  returns,  and  the  contraction  of  enterprise 

"Adapted  from  Principles  of  Political  Economy,  II,  211-214  (1893). 


THE  BUSINESS  CYCLE  209 

is  evidenced  by  the  reduction  in  the  flotation  of  companies ;  the  slack- 
ening of  trade  is  revealed  by  the  statistics  of  exports  and  imports, 
by  the  diminution  of  the  returns  of  the  clearing-houses  and  railway 
receipts;  and  the  yield  to  taxes  on  commodities  shows  directly  the 
decrease  in  consuming  power.  A  low  rate  of  interest,  an  abimdance 
of  "money,"  a  fall  in  all  the  more  speculative  securities,  especially 
compared  with  those  of  the  first  class,  point  to  a  contraction  of  en- 
terprise and  a  check  to  the  expansion  of  industry. 

Gradually  the  period  of  depression  gives  place  to  a  steady  quiet 
improvement,  which  is  shown  by  similar  statistical  evidence.  As  a 
rule,  also,  there  is  a  slight  upward,  movement  in  the  prices  of  com- 
modities, and  of  the  securities  with  dividends  dependent  on  trade. 
An  improved  demand  for  "money"  is  shown  by  the  gradual  rise  in 
the  rate  of  discount  and  a  corresponding  fall  in  the  price  of  first- 
class  securities  with  fixed  interest.  The  period  of  steady  prosperity, 
in  its  turn,  gives  way  to  a  period  of  inflation  culminating  in  a  crisis. 

It  is  hazardous  to  express  an  opinion  on  the  causes  of  periodicity 
at  a  time  when  the  periodicity  itself  seems  questionable,  but  I  ven- 
ture to  suggest  that  the  causes  should  be  sought  for  rather  in  mental 
than  in  physical  phenomena.  The  most  striking  features  in  the 
well-marked  cycles  up  to  1866  were  the  contraction,  expansion,  in- 
flation and  final  explosion  of  credit.  The  cycles  were  especially 
credit  cycles,  and  the  effects  on  trade  were  apparently  indirect.  No 
one  now  will  question  the  importance  of  the  organization  of  credit 
in  production  and  consumption.  But  credit,  although  requiring  for 
its  full  development  certain  material  appliances,  is  essentially  mental. 
Nothing,  however,  is  more  characteristic  of  mental  phenomena  than 
the  oscillations  between  periods  of  depression,  recovery  and  exal- 
tation. This  is  shown  in  an  exaggerated  form  in  nervous  disorders. 
It  may  well  happen  that  the  fear  and  distrust  excited  by  a  panic 
fade  away  in  two  or  three  years  and  give  place  to  a  sense  of  security, 
which  in  turn  engenders  over-confidence,  and  finally  speculative 
mania.  Of  course  some  people  will  remain  relatively  cautious,  and 
indeed  the  great  mass  of  business  may  be  conducted  on  sound  prin- 
ciples, but  it  is  sufficient  to  account  for  the  phenomena  if  any  con- 
siderable section  of  the  financial  world  goes  through  these  emo- 
tional stages.  The  sympathy  of  maricets  is  well  known,  both  in  in- 
flation and  depression.  The  failure  in  recent  years  of  the  period- 
icity to  assert  itself  in  so  marked  a  manner  as  before  may  be  due  to 
some  great  restraining  influence,  such  as  the  continuous  fall  in 
prices,  or  the  suppressed  fear  of  the  outbreak  of  a  general  war. 


2IO  CURRENT  ECONOMIC  PROBLEMS 

loi.     The  Rhythm  of  Business  Activity^ 

BY  WESI^UY   C.   MITCHELL 

With  whatever  phase  of  the  business  cycle  analysis  begins,  it 
must  take  for  granted  the  conditions  brought  about  by  the  preceding 
phase,  postponing  explanation  of  these  assumptions  until  it  has 
worked  around  the  cycle  and  come  again  to  its  starting-point. 

A  revival  of  activity,  then,  starts  with  a  legacy  from  depression : 
a  level  of  prices  low  in  comparison  with  the  prices  of  prosperity, 
drastic  reductions  in  the  costs  of  doing  business,  narrow  margins  of 
profit,  liberal  bank  reserves,  a  conservative  policy  in  capitalizing 
business  enterprises  and  in  granting  credits,  moderate  stocks  of 
goods,  and  cautious  buying. 

Such  conditions  are  accompanied  by  an  expansion  in  the  physical 
volume  of  trade.  Though  slow  at  first,  this  expansion  is  cumula- 
tive. In  time  an  increase  in  the  amount  of  business  which  grows 
more  rapid  as  it  proceeds  will  turn  dulness  into  activity.  Left  to 
itself  this  transformation  is  effected  by  slow  degrees ;  but  it  is  often 
hastened  by  some  propitious  event,  such  as  exceptionally  profitable 
harvests,  or  heavy  purchases  of  supplies  by  the  government. 

A  partial  revival  of  industry  soon  spreads  to  all  parts  of  the 
business  field.  For  the  active  enterprises  must  buy  materials  and 
current  supplies  from  other  enterprises,  the  latter  from  still  others, 
etc.  Meanwhile  all  enterprises  which  become  busier  employ  more 
labor,  use  more  borrowed  money,  and  make  higher  profits.  There 
results  an  increase  in  family  incomes  and  an  expansion  of  con- 
sumers' demands,  which  likewise  spreads  out  in  ever-widening  cir- 
cles. Shopkeepers  pass  on  larger  orders  to  wholesale  merchants, 
manufacturers,  importers,  and  producers  of  raw  materials.  All 
these  enterprises  increase  the  sums  they  pay  to  employees,  lenders, 
and  proprietors.  In  time  the  expansion  of  orders  reaches  back  to 
the  enterprises  from  which  the  initial  impetus  was  received,  and 
then  the  whole  complicated  series  of  reactions  begins  afresh  at  a 
higher  pitch  of  intensity.  All  this  while  the  revival  of  activity  is 
instilling  a  feeling  of  optimism  among  business  men. 

The  cumulative  expansion  of  the  physical  volume  of  trade  stops 
the  fall  in  prices  and  starts  a  rise.  For,  when  enterprises  have  in 
sight  as  much  business  as  they  can  handle  with  existing  facilities, 
they  stand  out  for  higher  prices  on  additional  orders.  This  policy 
prevails  because  additional  orders  can  be  executed  only  by  breaking 
in  new  hands,  starting  new  machinery,  or  buying  new  equipment. 

•Adapted  from  Business  Cycles,  571-579-  Copyright  by  the  author  (1913)- 
Published  by  the  University  of  California   Press. 


THR  BUSINESS  CYCLE  211 

The  expectation  of  its  coming  hastens  the  advance.  Buyers  are 
anxious  to  secure  large  supplies  while  the  quotations  continue  low, 
and  the  first  signs  of  an  upward  trend  bring  out  a  rush  of  orders. 

The  rise  of  prices  spreads  rapidly;  for  every  advance  puts  pres- 
sure on  someone  to  recoup  himself  by  advancing  the  prices  of  what 
he  has  to  sell.  The  resulting  changes  in  price  are  far  from  even : 
retail  prices  lag  behind  wholesale,  and  the  price  of  finished  products 
behind  the  price  of  their  raw  materials.  Among  the  last-mentioned 
the  prices  of  mineral  products  reflect  changed  business  conditions 
more  regularly  than  do  the  prices  of  forest  and  farm  products. 
Wages  rise  more  promptly,  but  in  less  degree  than  wholesale  prices ; 
interest  rates  on  long  loans  always  move  sluggishly  in  the  earlier 
stages  of  revival,  while  the  prices  of  stocks  both  precede  and  exceed 
commodity  prices  on  the  rise. 

In  a  great  majority  of  enterprises  larger  profits  result  from 
these  divergent  fluctuations  coupled  with  the  greater  physical  volume 
of  sales.  For  while  the  prices  of  raw  materials  and  of  bank  loans 
often  rise  faster  than  selling  prices,  the  prices  of  labor  lag  far 
behind,  and  the  prices  making  up  supplementary  costs  are  mainly 
stereotyped  by  old  agreements. 

The  increase  of  profits,  under  the  spell  of  optimism,  leads  to  a 
marked  expansion  of  investments.  The  heavy  orders  for  machin- 
ery, the  large  contracts  for  new^  construction,  etc.,  which  result, 
swell  still  further  the  physical  volimie  of  business,  and  render  yet 
stronger  the  forces  which  are  driving  prices  upward. 

Indeed,  the  salient  characteristic  of  this  phase  of  the  business 
cycle  is  the  cumulative  working  of  the  various  processes  which  are 
converting  a  revival  of  trade  into  intense  pro.sperity.  Not  only 
does  every  increase  in  the  volume  of  trade  cause  other  increases, 
every  convert  to  optimism  make  new  converts,  and  every  advance 
in  price  furnish  an  incentive  for  new  advances ;  but  the  growth  of 
trade  also  helps  to  spread  optimism  and  to  raise  prices,  while  op- 
timism and  rising  prices  support  each  other.  Finally  the  ch&nges 
going  forward  swell  profits  and  encourage  investments,  while  high 
profits  and  hea\y  investments  react  by  augmenting  trade,  justify- 
ing optimism,  and  raising  prices. 

While  the  processes  just  sketched  work  aimulatively  for  a  time 
to  enhance  prosperity,  they  also  cause  a  slow  accumulation  of 
stresses  within  the  balanced  system  of  business- —stresses  which 
ultimately  undermine  the  conditions  upon  which  prosperity  rests. 

Among  these  is  the  gradual  increase  in  the  cost  of  do.ing  busi- 
ness. The  decline  in  supplementary  costs  per  unit  ceases  when 
enterprises  have  secured  all  the  business  they  can  handle  with  their 
standard  equipment,  and  a  slow  increase  in  these  costs  begins  when 


212  CURRENT  ECONOMIC  PROBLEMS 

the  expiration  of  old  contracts  makes  necessary  renewals  at  higher 
rates.  Meanwhile  prime  costs  rise  at  a  relatively  rapid  rate.  The 
price  of  labor  rises  both  because  of  an  advance  in  nominal  wages 
and  because  of  higher  rates  for  overtime.  More  serious  is  a  decline 
in  the  efficiency  of  labor,  because  of  the  employment  of  undesirables, 
and  because  crews  cannot  be  driven  at  top  speed  when  jobs  are  more 
numerous  than  men.  The  prices  of  raw  material  rise  faster  on  the 
average  than  the  selling  prices  of  products.  Finally  numerous  small 
wastes  creep  up  when  managers  are  hurried  by  the  press  of  orders. 

A  second  stress  is  the  accumulating  tension  of  investment  and 
money  markets.  The  supply  of  funds  available  at  the  old  rates 
fails  to  keep  pace  with  the  swelling  demand.  It  becomes  difficult 
to  negotiate  new  issues  of  securities  except  on  onerous  terms,  and 
men  of  affairs  complain  of  the  "scarcity  of  capital."  Nor  does 
the  supply  of  bank  loans,  limited  by  reserves,  grow  fast  enough  to 
keep  up  with  the  demand.  Active  trade  keeps  such  an  amount 
of  money  in  circulation  that  the  cash  left  in  the  banks  increases 
rather  slowly.  On  the  other  hand,  the  demand  for  loans  grows,, 
not  only  with  the  physical  volume  of  trade,  but  also  with  the  rise 
of  prices,  and  with  the  desire  of  men  of  affairs  to  use  their  own 
funds  for  controlling  as  many  businesses  as  possible. 

Tension  in  the  bond  and  money  markets  is  unfavorable  to  the 
continuance  of  prosperity,  not  only  because  high  rates  of  interest 
reduce  the  prospective  margins  of  profit,  but  also  because  they 
check  the  expansion  of  the  volume  of  trade  out  of  which  prosperity 
develops.  Many  projected  ventures  are  relinquished  because  bor- 
rowers conclude  that  interest  would  absorb  too  much  of  their 
profits. 

The  group  producing  industrial  equipment  suffers  especially. 
In  the  earlier  stages  of  prosperity  this  group  enjoys  exceptional  ac- 
tivity. But  when  the  market  for  bonds  becomes  stringent  and  the 
cost  of  construction  high,  business  enterprises  defer  the  execution 
of  plans  for  extending  old  or  erecting  new  plants.  As  a  result  con- 
tracts for  this  kind  of  work  become  less  numerous  as  the  climax  of 
prosperity  approaches.  Then  the  steel  mills,  foundries,  machine 
factories,  lumber  mills,  construction  companies,  etc.,  find  their  orders 
for  future  delivery  falling  off. 

The  larger  the  structure  of  prosperity,  the  more  severe  become 
these  internal  stresses.  The  only  effective  means  of  preventing 
disaster  while  continuing  to  build  is  to  raise  selling  prices  time  after 
time  high  enough  to  offset  the  encroachment  of  costs  upon  profits. 
and  to  keep  investors  willing  to  contract  for  fresh  industrial  equip- 
ment. 


THE  BUSINESS  CYCLE  213 

But  it  is  impossible  to  keep  selling  prices  rising  for  an  indefinite 
time.  In  default  of  other  checks,  the  inadequacy  of  cash  reserves 
would  ultimately  compel  the  banks  to  refuse  a  further  expansion  of 
loans  on  any  terms.  But  before  this  stage  has  been  reached,  the 
rise  of  prices  is  stopped  by  the  consequences  of  its  own  inevitable 
inequalities.  These  become  more  glaring  the  higher  the  general 
level  is  forced;  after  a  time  they  threaten  serious  reductions  of 
profits  to  certain  business  enterprises,  and  the  troubles  of  these  vic- 
tims dissolve  that  confidence  in  the  security  of  credits  with  which 
the  whole  towering  structure  of  prosperity  has  been  cemented. 

In  certain  lines  in  which  selling  prices  are  stereotyped  by  law, 
by  contracts  for  long  terms,  by  custom,  or  by  business  policy,  selling 
prices  cannot  be  raised  to  prevent  a  reduction  of  profits.  In  other 
lines  prices  are  always  subject  to  the  incalculable  chances  of  the 
harvests.  In  some  lines  the  recent  construction  of  new  equipment 
has  increased  the  capacity  for  production  faster  than  the  demand 
for  the  wares  has  expanded  under  the  repressing  influence  of  high 
prices.  The  unwillingness  of  investors  to  let  fresh  contracts 
threatens  loss  not  only  to  the  contracting  firms  but  to  the  enterprises 
from  which  they  buy  materials.  Finally  the  success  of  some  enter- 
prises in  raising  prices  fast  enough  to  defend  their  profits  aggravates 
the  difficulties  of  the  men  who  are  in  trouble. 

As  prosperity  approaches  its  height,  then,  a  sharp  contrast  de- 
velops between  the  business  prospects  of  different  enterprises.  Many 
are  making  more  money  than  at  any  previous  stage  in  the  business 
cycle.  But  an  important  minority  faces  the  prospect  of  declining 
profits.  The  more  intense  prosperity  becomes,  the  larger  grows  this 
threatened  group.  In  time  these  conditions  bred  by  prosperity  will 
force  radical  readjustment. 

Such  a  decline  of  profits  threatens  consequences  worse  than 
the  failure  to  realize  expected  dividends.  For  it  arouses  doubt 
about  the  future  of  outstanding  credits.  Business  credit  is  based 
primarily  upon  the  capitalized  value  of  present  and  prospective 
profits,  and  the  volume  of  credits  outstanding  at  the  zenith  of  pros- 
perity is  adjusted  to  the  great  expectations  which  prevail  when 
affairs  are  optimistic.  The  rise  of  interest  rates  has  already  nar- 
rowed the  margins  of  security  behind  credits  by  reducing  the  capi- 
talized value  of  given  profits.  When  profits  begin  to  waver,  credi- 
tors begin  to  fear  lest  the  shrinkage  in  the  market  rating  of  business 
enterprises  which  owe  them  money  will  leave  no  adequate  security 
for  repayment.  Hence  they  refuse  renewals  of  old  loans  to  enter- 
prises which  cannot  stave  off  a  decline  in  profits,  and  press  for 
settlement  of  outstanding  accounts. 


214  CURRENT  ECONOMIC  PROBLEMS 

Thus  prosperity  ultimately  brings  on  conditions  which  start  a 
liquidation  of  the  huge  credits  which  it  has  piled  up.  And  in.the 
course  of  this  liquidation  prosperity  merges  into  crisis.  Once  begun 
the  process  of  liquidation  extends  rapidly,  partly  because  most 
enterprises  called  upon  to  settle  put  similar  pressure  on  their  own 
debtors,  and  partly  because  news  presently  leaks  out  and  other  credi- 
tors take  alarm. 

While  this  financial  readjustment  is  under  way,  the  problem  of 
making  profits  is  subordinated  to  the  more  vital  problem  of  main- 
taining solvency.  Business  managers  nurse  their  financial  resources 
rather  than  push  their  sales.  In  consequence  the  volume  of  new 
orders  falls  ofT  rapidly.  The  prospect  of  profits  is  dimmed.  Ex- 
pansion gives  place  to  contraction.  Discount  rates  rise  higher  than 
usual,  securities  and  commiodities  fall  in  price,  and  working  forces 
are  reduced.  But  there  is  no  epidemic  of  bankruptcy,  no  run  upon 
banks,  and  no  spasmodic  interruption  of  ordinary  business  proc- 
esses. 

Crises,  however,  may  degenerate  into  panics.  When  the  process 
of  liquidation  reaches  a  weak  link  in  the  chain  of  interlocking  credits 
and  the  bankruptcy  of  some  conspicuous  enterprise  spreads  un- 
reasoning alarm,  the  banks  are  suddenly  forced  to  meet  a  double 
strain — a  sharp  increase  in  the  demand  for  loans  and  in  the  demand 
for  repayment  of  deposits.  If  the  banks  meet  both  demands,  the 
alarm  quickly  subsides.  But  if  many  solvent  business  men  are  refused 
accommodation  at  any  price,  and  depositors  are  refused  payment  in 
full,  the  alarm  turns  into  a  panic.  A  restriction  of  payments  by 
banks  gives  rise  to  a  premium  upon  currency,  to  hoarding  of  cash, 
and  to  the  use  of  various  unlawful  substitutes  for  money.  Interest 
rates  may  go  to  three  or  four  times  their  usual  figures,  causing  forced 
suspensions  and  bankruptcies.  There  follow  appeals  to  the  govern- 
ment for  extraordinary  aid,  frantic  efforts  to  import  gold,  the  issue 
of  clearing-house  loan  certificates,  and  an  increase  in  bank-note 
circulation  as  rapidly  as  the  existing  system  permits.  Collections 
fall  into  arrears,  workmen  are  discharged,  stocks  fall  to  extremely 
low  levels,  commodity  prices  are  disorganized  by  sacrifice  sales,  and 
the  volume  of  business  is  violently  contracted. 

There  follows  a  period  during  which  depression  spreads  over 
the  whole  field  of  business  and  grows  more  severe.  Consumers' 
demand  declines  in  consequence  of  wholesale  discharge  of  wage- 
earners.  With  it  falls  the  business  demand  for  raw  materials,  cur- 
rent supplies,  and  equipment.  Still  more  severe  is  the  shrinkage  in 
the  investors'  demand  for  construction  work  of  all  kinds.  The 
contraction  in  the  physical  volume  of  business  which  results  from 
these  shrinkages  in  demand  is  cumulative,  since  every  reduction  of 


THE  BUSINESS  CYCLE  215 

employment  causes  a  reduction  in  consumers'  demand,  thereby 
starting  again  the  whole  series  of  reactions  at  a  higher  pitch  of 
intensity. 

With  this  contraction  goes  a  fall  in  prices.  For  when  current 
orders  are  insufficient  to  employ  the  existing  equipment,  competi- 
tion for  business  becomes  keener.  This  decline  spreads  through 
the  regular  commercial  channels  which  connect  one  enterprise  with 
another,  and  is  cumulative,  since  every  reduction  in  price  facilitates 
reductions  in  other  prices,  and  the  latter  reductions  react  to  cause 
fresh  reductions  at  the  starting-point. 

The  fall  in  prices  is  characterized  by  certain  regularly  recurring 
differences  in  degree.  Wholesale  prices  fall  faster  than  retail,  and 
the  prices  of  raw  materials  faster  than  those  of  manufactured  prod- 
ucts. The  prices  of  raw  mineral  products  follow  a  more  regular 
course  than  those  of  forest  or  farm  products.  Wages  and  interest 
on  long-time  loans  decline  in- less  degree  than  commodity  prices. 
The  only  important  group  of  prices  to  rise  is  high-grade  bonds. 

The  contraction  in  the  volume  of  trade  and  the  fall  in  prices 
reduce  the  margin  of  present  and  prospective  profits,  spread  dis- 
couragement, and  check  enterprise.  But  they  also  set  in  motion 
certain  processes  of  readjustment  by  which  the  depression  is 
overcome. 

The  prime  costs  of  doing  business  are  reduced  by  the  fall  in 
the  prices  of  raw  material  and  of  bank  loans,  by  the  marked  increases 
in  the  efficiency  of  labor  which  comes  when  employment  is  scarce, 
and  by  closer  economy  by  managers.  Supplementary  costs  are  re- 
duced by  reduction  of  rentals  and  refunding  of  loans,  by  writing 
down  depreciated  properties,  and  by  admitting  that  a  recapitaliza- 
tion has  been  effected  on  the  basis  of  lower  profits. 

While  costs  are  being  reduced,  the  demand  for  goods  begins 
slowly  to  expand.  Accumulated  stocks  left  over  from  prosperity 
are  exhausted,  and  current  consumption  requires  current  production. 
Clothing,  furniture  and  machinery  are  discarded  and  replaced. 
New  tastes  appear  among  consumers  and  new  methods  among  pro- 
ducers, giving  rise  to  demand  for  novel  products.  Most  important 
of  all,  the  investment  demand  for  industrial  equipment  revives. 
Capitalists  become  less  timid  as  the  crisis  recedes  into  the  past,  the 
low  rates  of  interest  on  long-time  bonds  encourages  borrowing,  and 
contracts  can  be  let  on  most  favorable  conditions. 

Once  these  forces  have  set  the  physical  volume  of  trade  to 
expanding,  the  increase  proves  cumulative.  Business  prospects 
become  gradually  brighter.  Everything  awaits  a  revival  of  activity 
which  will  begin  when  some  fortunate  circumstance  gives  a  fillip  to 
demand,  or,  in  the  absence  of  such  an  event,  when  the  slow  growth 


2i6  CURRENT  ECONOMIC  PROBLEMS 

of  the  volume  of  business  has  filled  order  books  and  paved  the  way 
for  a  new  rise  in  prices.  Such  is  the  stage  of  the  business  cycle 
with  which  the  analysis  begins,  and,  having  accounted  for  its  own 
beginning,  the  analysis  ends. 

C.    THE  ANTECEDENTS  OF  CRISES 
102.    The  Causes  of  the  Panic  of  1893^ 

BY   W.    JETT    I,AUCK 

But  what  was  the  local  and  the  true  cause  of  the  crisis  of  1893 
in  this  country  ?  It  cannot  be  said  to  have  been  due  to  a  scarcity  of 
money  in  the  United  States  at  that  time.  During  the  entire  period 
1878-93  the  amount  of  money  in  circulation  more  than  doubled. 
Consequently  the  money  supply  was  ample.  On  the  other  hand,  it 
cannot  be  maintained  that  the  crisis  of  1893  was  caused  by  an  ex- 
tension of  the  mercantile  credits  such  as  brought  about  the  dis- 
astrous collapse  of  1873,  for  business  houses  and  industrial  estab- 
lishments during  the  period  1891-93,  instead  of  extending,  were 
curtailing  their  operations,  and  were  arranging  their  plans  in  the 
expectation  of  a  breakdown  in  the  financial  machinery  of  the  coun- 
try. They  could  not  have  engaged  in  any  extended  or  hazardous 
activities  if  they  had  been  inclined  to  do  so,  for  the  reason,  as  al- 
ready seen,  that  very  little,  if  any,  foreign  capital  was  obtainable 
foj  investment  in  the  United  States  after  1891,  and  American  cap- 
ital likewise  refused  to  enter  into  doubtful  financial  or  industrial 
undertakings.  So  far  as  the  withdrawal  of  foreign  and  domestic 
funds,  however,  brought  about  industrial  and  business  disaster,  it 
was  not  a  direct  cause  of  the  crisis,  but  only  the  result  which  flowed 
out  of  the  operation  of  the  primary  and  fundamental  cause. 

This  cause  to  which  the  crisis  of  1893  is  directly  and  wholly 
attributable  consisted  of  a  widespread  fear,  both  at  home  and 
abroad,  that  the  United  States  would  not  be  able  to  maintain  a  gold 
standard  of  payments.  The  very  nature  of  the  crisis  itself  bears 
out  this  conclusion.  It  was  essentially  a  monetary  crisis,  and  its 
typical  feature  consisted  in  the  numerous  failures  of  banks  and 
financial  institutions.  Moreover,  the  precipitation  of  and  the  recov- 
ery from  the  crisis  furnishes  additional  evidence  to  bear  out  the  fore- 
going claim.  The  beginning  of  the  crisis  was  marked  by  the  decline 
of  the  Treasury  gold  reserve,  on  April  22,  below  the  $100,000,000 
limit ;  the  ending  of  the  resultant  industrial  and  financial  chaos  dated 

''Adapted  from  The  Causes  of  the  Panic  of  1893,  118-121.    Copyright  by 
Hart.  Schaflfner  &  Marx  (1907). 


THE  BUSINESS  CYCLE  217 

from  the  assurance,  on  August  28,  of  the  repeal  of  the  Silver  Law 
of  1890. 

The  apprehension  in  1893  as  to  the  fixity  of  the  gold  standard 
of  payments  arose  indirectly  out  of  the  silver  agitation  and  legis- 
lation during  the  period  1878-90,  and  was  directly  traceable  to  the 
operation  of  the  Sherman  Silver  Purchase  Law  of  1890.  For  sev- 
enteen years,  1878-90,  the  gold  standard  of  payments  was  constantly 
threatened,  and  the  crisis  of  1893  was  practically  the  culmination 
of  this  long  period  of  uncertainty.  Under  the  operation  of  the  Silver 
Act  of  1878,  the  country  received  a  serious  shock  to  its  confidence 
in  the  fixity  of  the  gold  standard.  During  the  two  years,  1884-86, 
when  the  silver  issues  of  the  country  became  redundant,  the  dis- 
trust in  the  ability  of  the  Treasury  to  maintain  gold  payments  became 
so  great  that  gold  was  withheld  in  the  payments  of  customs  duties, 
and  silver  certificates  were  worked  off  on  the  Treasury.  Additions 
to  the  Treasury's  supply  of  gold  were  thus  cut  off,  and  the  gold  re- 
serve declined  to  $115,000,000.  As  a  consequence,  apprehension  as 
to  the  maintenance  of  gold  payments  became  widespread,  and  a 
panic  was  narrowly  averted.  As  it  was,  the  stream  of  silver  was 
only  prevented  from  overflowing  the  Treasury  by  the  action  of  the 
Treasury  officials  in  employing  artificial  devices  to  create  a  vacuum 
in  the  circulation. 

The  advocates  of  the  free  coinage  of  silver,  however,  held  the 
balance  of  political  pow-er  during  the  first  session  of  the  Fifty-first 
Congress,  and  as  a  result  of  their  agitation  the  Sherman  Law  was 
passed,  which  almost  doubled  the  amount  of  silver  obligations  an- 
nually issued  by  the  Government.  The  currency  of  the  country 
soon  became  redundant,  and  silver  certificates  and  Treasury  notes 
were  used  in  the  payments  of  public  dues,  while  gold  was  hoarded. 
Consequently  the  Treasury  gold  reserve  rapidly  declined,  and  fear 
for  the  maintenance  of  the  standard  again  arose.  Foreign  investors 
and  exporters  saw  the  danger  in  the  situation  even  before  the  people 
of  this  countr}',  and  began  to  withdraw  the  funds  which  they  had 
invested  in  this  country  during  the  period  1886-90.  Moreover,  they 
called  for  the  payment  of  trade  balances  in  gold.  Gold  was,  there- 
fore, demanded  for  export.  But  the  banks  in  the  United  States 
were  hoarding  gold,  and  gold  for  export  could  practically  be  ob- 
tained only  by  the  presentation  of  legal-tender  notes  at  the  Treasury 
for  redemption.  This  operation  caused  a  further  inroad  upon  the 
Treasury  gold  reserve.  Larger  amounts  of  funds  were  drawn  from 
the  country,  and  increasing  amounts  of  gold  flowed  out  of  the  Treas- 
ury in  the  redemption  of  legal-tenders.  The  limit  was  finally  reached 
on  April  22,  1895,  when  the  gold  reserve  fell  below  the  danger-line. 


2i8  CURRENT  ECONOMIC  PROBLEMS 

At  that  time  the  fears  of  the  public  over  the  question  of  the  standard 
of  payments  reached  a  climax. 

As  soon  as  it  became  known  that  the  gold  reser\'e  of  the  Treas- 
ury had  declined  below  the  danger-point  of  $icx3,ooo,ocxd  the  appre- 
hension relative  to  the  fixity  of  the  standard  developed  into  a  panic. 
There  was  an  immediate  rush  to  realize  on  all  descriptions  of  prop- 
erty before  the  gold  standard  was  abandoned.  The  public  were 
afraid  of  the  adoption,  as  the  standard  of  payments,  of  a  silver  dollar 
which  was  worth  only  fifty  cents  in  gold.  At  the  same  time  over- 
whelming demands  were  made  upon  the  banks  to  pay  their  accounts 
in  gold  or  specie,  and  the  cash  thus  obtained  by  depositors  was 
hoarded  and  the  existing  money  supply  contracted.  Under  these 
conditions  gold  seemed  scarce.  In  reality  gold  was  only  relatively 
scarce  in  comparison  with  the  abnormal  offering  of  property  for 
sale  on  account  of  the  fear  of  the  silver  standard.  In  the  face  of 
the  universal  demand,  however,  to  convert  property  into  cash  or 
some  other  liquid  form  of  exchange,  those  having  obligations  to 
meet  found  it  impossible  to  secure  funds,  and  the  result  was  soon 
seen  in  widespread  industrial  and  financial  disaster. 

103.     The  Irrepressible  Crisis" 

BY  W.  H.  LOUGH,  JR. 

We  may  make  a  list  of  twelve  factors  to  be  considered  in  sizing 
up  the  present  situation.  They  are  arranged  approximately  in 
inverse  order  to  their  immediate  influence. 

1.  The  state  of  the  public  mind. 

2.  Production  and  volume  of  credit  in  extractive  industries. 

3.  Production  and  volume  of  credit  in  manufacturing  industries. 

4.  Production  and  volume  of  credit  in  transportation  industries. 

5.  Output  of  mortgages  and  bonds. 

6.  Output  of  credit  currency. 

7.  Output' of  loans  and  discounts. 

8.  Output  of  book  credits. 

9.  Trend  of  general  prices. 

10.  Treasury  and  bank  reserves  of  cash. 

11.  Output  of  gold. 

12.  Tendency  of  foreign  exchange. 

•Adapted  from  an  article  in  Moody's  Magazine,  III,  586-592.  Copyright 
(April,  1907).  This  article  was  outlined  in  February,  1907,  and  barely  missed 
getting  into  the  March  number  of  Moody's  in  which  editorial  mention  of  it 
was  made.  Its  statements  as  to  financial  weakness  were,  at  least  in  part, 
verified  by  the  extreme  declines  in  security  values  during  the  month  of  March. 


THE  BUSINESS  CYCLE  219 

If  we  could  get  complete  and  accurate  information  about  each 
one  of  these  twelve  factors  we  could  come  to  some  definite  and 
practically  certain  conclusion  as  to  the  business  future.  Suppose 
we  try  to  sum  up  briefly  the  data  available  at  present  about  each  of 
the  factors  named. 

1.  It  is  obvious  that  neither  over-confidence  nor  speculative 
mania  is  or  has  been  especially  strong.  On  the  contrary,  intelligent 
opinion  is  notably  conservative.  Retrenchment,  not  headlong  ex- 
pansion, is  the  order  of  the  day.  Land  booms  have  been  reported 
from  various  parts  of  the  country,  but  apparently  they  have  not  been 
attended  with  the  excitement  that  has  existed  in  such  cases  at  other 
times. 

2.  The  extractive  industries,  agriculture  and  mining,  have  made 
new  records  in  volume  of  production  in  the  year  just  passed  with- 
out interfering  with  prices  to  any  marked  extent.  The  yields  of  com 
and  winter  wheat  were  greater  than  ever  before.  Other  crops  were, 
on  the  whole,  Extraordinary,  and  1906  came  as  the  climax  of  several 
previous  years  of  large  agricultural  output.  The  prospects  for  1907 
are  favorable. 

3.  Manufacturing  industries,  as  is  well  known,  have  made  great 
strides  in  the  last  three  years.  To  take  two  examples  which  happen 
to  hfe  at  hand,  we  find  new  buildings  contracted  for  in  1906  worth 
$750,000,000  and  we  find  an  output  of  25,000,000  tons  of  pig  iron 
in  1906,  against  23,000,000  tons  in  1905,  the  best  previous  year.  The 
pig  iron  was  used  largely  for  structural  steel  and  railroad  equip- 
ment. A  falling  off  in  the  demand  for  these  two  products  would 
undoubtedly  affect  a  great  amount  of  outstanding  securities,  and 
short  time  credit.  In  the  opinion  of  excellent  judges,  a  decline  in 
the  demand  is  already  at  hand,  and  will  in  all  probability  become 
more  evident  as  the  year  progresses.  As  to  other  lines  of  manufac- 
turing we  may  say,  in  general,  that  production  is  large  and  increas- 
ing, but  apparently  not  yet  excessive. 

4.  New  railroad  trackage  built  in  1906  reached  a  total  of  over 
6,000  miles ;  but  this  new  mileage  is  nothing  compared  to  that  con- 
templated for  the  next  few  years.  The  Northwestern  railroads  are 
especially  active,  and  in  that  region  the  "era  of  competitive  railroad 
building,"  predicted  by  E.  H.  Harriman,  is  at  hand.  What  the 
effects  will  be  on  the  large  volume  of  new  railroad  stocks  remains  to 
be  seen.  Within  the  last  two  months  railroad  managers  have  begun 
to  move  a  little  more  slowly  in  extending  and  improving  their  lines. 
Nevertheless  railroad  rebuilding  and  enlargement  is  still  progressing 
on  a  great  scale,  for  transportation  facilities  are  plainly  inadequate. 


220  CURRENT  ECONOMIC  PROBLEMS 

5.  In  considering  long  time  debts,  we  should  note  first  the  strik- 
ing unpopularity  of  bonds  with  the  investing  public.  The  reluc- 
tance of  investors  to  put  their  money  into  mortgages  and  bonds  is, 
of  course,  a  natural  result  of  high  prices  and  big  semi-speculative 
profits,  which  make  bond  returns  look  small. 

6.  In  the  amount  of  credit  currency  issued  by  the  government 
we  find,  of  course,  no  important  change  in  the  last  few  years.  The 
volume  of  bank  notes  outstanding,  however,  has  steadily  increased 
from  $i72,ooo,(xx),  in  1894,  to  about  $585,ooo,cxx),  now.  The  fact 
that  the  increase  has  been  brought  about  by  more  liberal  laws  and 
by  the  lowered  price  of  government  bonds,  rather  than  by  business 
demands,  naturally  leads  us  to  suspect  its  stability. 

7.  The  present  status  of  bank  loans  and  discounts  is  best  indi- 
cated by  the  following  totals  of  this  item  for  all  national  banks  : 
1896,  $1,873,000,000;  1900,  $2,710,000,000;  1906,  $4,300,000,000. 
These  are  most  surprising  figures  in  view  of  the  comparatively  slight 
increase  in  population  and  real  capital  during  the  same  period.  They 
grow  more  astonishing  still  when  we  think  of  the  great  increase  in 
other  banking  business  during  the  last  ten  years.  The  rate  of  in- 
crease would  be  almost  beyond  belief  if  the  figures  were  not  thor- 
oughly trustworthy. 

8.  Under  the  term  "book  credits"  I  mean  to  include  all  the 
great  body  of  accommodation  extended  by  merchants  to  individual 
customers  and  by  wholesalers  to  retail  firms.  Of  course  it  is  im- 
possible to  compute  its  amount.  All  we  can  say  is  that,  beyond  ques- 
tion, it  must  exceed  in  volume  anything  that  this  country  has  ever 
previously  known.  If  a  wave  of  credit  restriction  should  set  in,  a 
great  many  individuals  and  firms  would  be  compelled  to  shorten 
sail  in  a  hurry. 

9.  The  trend  of  general  prices  in  the  last  few  years  is  too  well 
known  to  call  for  much  discussion.  Dun's  index  numbers  for  a 
few  years  past  are  as  follows:  1897,  75.5;  1898,  79.9;  1899,  80.4; 
1900,  95.3;  1901,  95.7;  1902,  101.6;  1903,  100.4;  1904,  100. 1 ;  1905, 
100.3  '1  1906,  105.2.  These  prices  are  the  inevitable  result  of  the  out- 
put of  gold  and  of  credit  during  this  period. 

10.  The  total  gold  coin  and  certificates  in  circulation  in  the 
United  States  was,  in  1896,  $497,000,000;  in  1900,  $811,000,000;  in 
1906,  $1,263,000,000.  The  total  national  bank  reserves  of  lawful 
money,  in  September,  1896,  was  $343,000,000 ;  in  1900,  $520,000,000 ; 
in  1906,  $626,000,000.  The  ratio  of  cash  on  hand  to  deposits  at 
corresponding  periods  of  the  last  few  years  has  been:   1896,  19.1%  ; 

1900,  i5.9%';  1901, 147%;  1902, 13-2%;  1903. 14-3%;  1904, 15%; 

1905,  14%;  1906,  12.7%.     Looking  over  the  banking  field,  we  see 
a  general  downward  tendency  in  the  proportion  of  cash  reserves 


THE  BUSINESS  CYCLE  221 

to  the  credit  piled  up  on  the  reserves.  Unless  the  downward  ten- 
dency be  reversed,  according  to  all  experience,  the  result  will  be 
disastrous.  It  is  in  order,  then,  to  see  what  the  prospect  is  of  reliev- 
ing the  situation  by  large  additions  of  cash. 

11.  The  annual  gold  production  of  the  world  has  increased 
from  $202,000,000,  in  1896,  to  over  $400,000,000,  in  1906,  and  the 
outlook  is  for  a  still  greater  production  next  year.  But,  sooner  or 
later,  the  rising  tide  of  prices  is  certain, to  cut  off  the  less  profitable 
production  and  lead  to  a  restriction  of  output. 

12.  We  turn,  as  a  last  source  of  temporary  relief,  to  the  other 
commercial  nations  in  the  hope  that  from  them  the  United  States 
may  draw  additional  supplies  of  gold.  The  principal  foreign  banks 
of  the  world  are  estimated  to  hold  about  $4,000,000,000  specie,  in- 
cluding both  gold  and  silver.  The  whole  commercial  world  seems 
deluged  with  prosperity.  No  nation  and  no  bank  has  too  much  gold. 
On  the  contrary,  every  one  is  reaching  eagerly  for  more  on  which 
to  base  an  enlarged  issue  of  credit.  American  banks  will  seek  in 
vain  in  foreign  markets  for  sufficient  additions  to  their  cash  reserves. 

The  experience  of  the  last  hundred  years  indicates  that  the  forces 
now  at  work  are  driving  us  straight  toward  a  crisis, — and  I  mean 
by  crisis  not  a  Wall  Street  flurry,  such  as  we  have  lately  seen,  which 
may  come  at  any  time  from  purely  local  influences,  but  a  general, 
temporary  break-down  of  industry.  With  credit  everywhere  ex- 
panded to  the  danger  point,  we  are  in  a  position  from  which  only 
two  means  of  escape  are  possible.  One  is  a  large  and  rapid  increase 
in  our  gold  reserves,  which  is  out  of  the  question.  The  other  is  a 
progressive  restriction  of  credit,  necessarily  gathering  momentum 
as  it  proceeds,  which  is  another  name  for  crisis.  Just  when  or  how 
the  wave  of  credit  withdrawals  will  start  no  one  can  tell.  A  big 
failure  or  a  rash  bit  of  legislation,  or  any  one  of  a  hundred  inci- 
dents, which  under  normal  conditions  would  do  little  harm,  might 
set  it  going. 

So  long  as  the  decisive  incident  does  not  occur, — and,  of  course, 
it  may  not  come  very  soon,  possibly  not  for  two  or  three  years, — 
prices  keep  on  rising  and  credit  keeps  piling  up.  For  that  reason  the 
longer  it  is  delayed  the  harder  jolt  it  is  likely  to  give. 

104.     Industrial  Conditions  Preceding  tiie  Panic' 

It  did  not  take  a  prophet  to  foretell  that,  following  the  three 
months'  decline  in  the  price  of  stocks  which  culminated  in  the  severe 
declines  in  March,  a  business  depression  would  follow.    The  lessons 

•Adapted  from  an  editorial  in  Moody's  Magazine,  TV,  103-109.  Copy- 
right (July,  1907). 


222  CURRENT  ECONOMIC  PROBLEMS 

of  history  make  it  certain  that  industrial  contraction  begins  soon 
after  a  great  decHne  in  stock  prices  occurs.  A  few  long-headed  men 
last  fall  saw  plenty  of  trouble  ahead  and  began  to  prepare  for  it  by 
unloading  stock  at  high  prices.  Not,  however,  until  the  middle  of 
March  were  there  plenty  of  bears  in  evidence.  Although  financial 
experts  worked  overtime  in  March  to  convince  us  that  the  decline 
was  temporary,  due  to  mischievous  legislation,  close  observers  no- 
ticed within  a  few  weeks  after  the  collapse  that  the  demand  for 
luxuries,  like  diamonds,  automobiles,  and  pianos,  began  to  decline. 
Soon  the  railroads  began  to  curtail  improvements;  then  manufac- 
turers of  electric  supplies  began  to  lay  men  oflf;  then  we  read  that 
the  department  stores  of  New  York  had  discharged  2,000  employees, 
and  expected  to  discharge  4,000  more;  next  we  heard  that  manu- 
facturers in  various  lines  were  curtailing  output,  and  that  many  big 
wholesale  merchants  had  instructed  their  buyers  in  Europe  to  curtail 
purchases.  A  little  later  there  appeared  statistics  of  many  kinds 
that  indicate  a  shrinkage  in  business.  Bank  clearings,  railroad  earn- 
ings, smaller  volume  of  business,  and  unsuccessful  strikes  are  some 
of  the  evidences  of  the  depression  already  upon  us. 

Because  of  the  destruction  of  old  capital  and  new  issues  of 
securities  calling  for  more  and  more  new  capital  as  well  as  the 
unparalleled  construction  of  buildings  and  permanent  improve- 
ments, turning  circulating  into  fixed  capital,  the  banking  situa- 
tion is  now  about  the  worst  ever  known.  Never  were  liabilities  so 
great  and  cash  reserves  lower  in  proportion  to  liabilities.  Gradually 
conditions  appear  to  be  growing  worse  instead  of  better.  The 
forced  liquidation  in  bonds  and  stocks  had  not  this  year  been  suffi- 
cient to  improve  the  credit  situation. 

The  depreciation  in  shares  is  due  to  the  rise  in  the  price  of  cap- 
ital. The  development  of  industrial  enterprise  has  recently  been  too 
rapid  for  available  capital.  The  one  great  cause  is  the  lack  of  cap- 
ital to  carry  on  the  world's  business  on  the  scale  now  planned.  The 
industrial  and  financial  world  has  overreached  itself.  Although  new 
capital  is  being  created  faster  than  ever  before,  the  supply  is  not 
equal  to  the  demand,  and  the  business  of  the  world  must  slacken 
for  awhile. 

That  the  cash  reserves  of  the  world  are  low,  as  compared  with 
banking  liabilities,  is  beyond  question.  In  this  country  the  surplus 
reserve,  as  shown  by  the  New  York  bank  statement  of  July  6,  was 
$856,250.  This  is  the  first  time  since  1893  that  the  surplus  reserve 
has  fallen  below  $5,000,000,  for  the  first  week  in  July.  Even  more 
significant  is  the  fact  that  loans  have  been  increasing  steadily  in 
proportion  to  deposits,  and  that  they  now  exceed  deposits  by  3.4%. 


THE  BUSINESS  CYCLE  223 

In  1905  deposits  exceeded  loans  by  about  4%.    These  figures  indi- 
cate an  unstable  equilibrium  in  the  business  world. 

If  these  statistics  are  a  fair  index,  the  business  world  is  today 
insolvent,  under  panic  conditions.  It  owes  more  than  it  can  pay, 
except  by  further  borrowing  from  the  banks.  All  that  is  necessary 
to  precipitate  a  panic  under  such  conditions  is  for  the  solvent  por- 
tion of  the  depositors  to  become  frightened  and  to  withdraw  their 
bank  deposits.  The  banks  will  then  be  compelled  to  call  loans  and 
to  demand  payment  from  the  insolvent  portion.  Since  only  5.6% 
of  the  resources  of  the  banks  are  in  cash,  it  is  probable  that  many 
national  banks  are  in  a  weak  condition.  Possibly  the  brakes  will  yet 
be  applied  in  time  to  prevent  serious  trouble  and  to  enable  us  to 
pass  through  the  coming  financial  ordeal  with  a  very  slight  reaction. 

105.    The  Arrested  Crisis  of  1907^" 

BY  EDWIN  R.  A.  SEWGMAN 

The  crisis  of  1907  is  on  the  whole  not  comparable  in  magnitude 
to  that  of  1857  or  that  of  1873.  The  reasons  for  this  may  be 
classified  under  five  heads. 

In  the  first  place,  the  very  magnitude  of  the  country's  resources 
has  been  a  favorable  factor.  The  unparalleled  prosperity  of  the 
last  decade  has  made  possible  the  accumulation  of  vast  reserves,  not 
only  by  great  corporations,  but  also  by  average  business  men.  This 
reserve  has  acted  as  a  buffer  to  the  shock  of  reaction  and  has 
softened  the  impact  through  a  speedy  restoration  of  confidence  in 
the  excellence  of  the  country's  assets  and  in  the  real  solvency  of 
business. 

Secondly,  the  crops  have  been  large  and  valuable.  It  must  be 
remembered  that,  notwithstanding  all  recent  developments,  this 
country  is  still  primarily  agricultural  and  that  upon  our  great  crops 
depends  in  large  measure  the  effective  demand  which  sets  and  keeps 
in  motion  the  wheels  of  business  activity.  By  a  fortunate  coincidence 
the  crisis  was  attended  by  a  phenomenon  which  in  ordinary  times 
would  have  spelled  prosperity,  and  which  helped  to  bring  back 
normal  conditions. 

In  the  third  place,  the  overcapitalization  of  values  was  somewhat 
less  conspicuous  than  hitherto  in  transportation.  Some  former  crises 

"Adapted  from  "The  Crisis  of  1907  in  the  Light  of  History,"  in  The 
Currency  Problem  and  the  Financial  Situation,  xx-xxv.  Copyright  by  the 
Oilumbia  University  Press  (1908). 


224  CURRENT  ECONOMIC  PROBLEMS 

have  been  brought  on  primarily  by  the  speculative  building  of  rail- 
roads. During  the  past  five  years  the  annual  increment  of  con- 
struction has  been  only  four  or  five  thousand  miles.  The  conse- 
quence has  been  that  with  the  rapid  upbuilding  of  the  country  the 
railways  have  grown  up  to  their  capitalization.  For  some  time 
there  has  been  scarcely  any  overcapitalization.  A  striking  proof  of 
the  absence  of  any  real  discrepancy  between  normal  values  and 
capitalization  of  earning  capacity  is  afforded  by  the  congestion  of 
traffic  a  year  or  two  ago. 

Fourthly,  the  crisis  was  preceded  by  a  period  of  gradual  liquida- 
tion. General  prices  of  commodities,  with  a  few  notable  exceptions, 
like  that  of  copper,  were  indeed  high  until  well-nigh  the  outbreak 
of  the  panic.  But  the  price  of  securities  had  for  some  time  under- 
gone a  marked  shrinkage.  This  was  caused  chiefly  by  the  rise  in 
the  rate  of  interest.  In  fact  the  one  phenomenon  is  really  the 
other;  for  where  earnings  remain  unchanged,  the  capitalization  of 
the  earnings  depends  upon  the  rate  of  interest. 

The  rise  in  the  interest  rate  was  due  in  part  to  the  increase  in 
the  gold  output;  for  an  increase  in  the  supply  of  standard  money 
raises  not  only  the  price  level  of  all  commodities,  but  the  price  of 
the  use  of  capital,  which  we  call  the  general'  rate  of  interest.  In 
part  the  increase  was  due  to  the  relatively  smaller  amount  of 
capital  available  for  investment.  The  fund  of  free  capital  has  been 
diminishing  for  the  last  few  years.  Hundreds  of  millions  were 
destroyed  by  the  Boer  and  Japanese  wars;  hundreds  of  millions 
more  disappeared  through  the  destruction  of  San  Francisco  and 
Valparaiso;  and  countless  millions  in  addition  have  been  utilized 
to  finance  the  more  or  less  dubious  schemes  which  have  sprung  up 
in  all  countries  during  the  years  of  prosperity.  Despite  the  lack 
of  general  overcapitalization,  the  discounting  of  the  future  was 
not  ample,  and  the  capital  was  invested  more  rapidly  than  the  im- 
mediate returns  would  warrant.  The  replacement  fund,  in  other 
words,  was  neither  quite  large  enough  nor  quite  active  enough ;  and 
with  the  gradual  exhaustion  of  the  available  free  capital,  interest 
rates  necessarily  rose  and  security  values  as  a  consequence  fell. 

The  period  of  liquidation  was  thus  a  fortunate  event.  By  check- 
ing the  movement  of  exaltation,  and  preventing  the  level  of  prices 
from  being  so  extreme,  it  kept  the  reaction  from  being  so  great. 
Where  the  crest  of  the  wave  is  lower,  the  shock  of  the  break  is 
less.  Had  the  ascent  of  prices  and  values  gone  on  unhindered,  the 
convulsion  would  have  been  far  more  severe. 

The  fifth  and  final  cause  of  the  lesser  magnitude  of  the  crisis 
is  the  development  of  trusts.  As  against  the  undoubted  perils  asso- 
ciated with  the  newer  type  of  business  organization,  we  must  put 


THE  BUSINESS  CYCLE  225 

at  least  one  countervailing  advantage.  The  modern  trust  is  likely 
to  exert  an  undeniably  steadying  influence  on  prices.  Precisely  be- 
cause of  the  immense  interests  at  stake,  and  the  danger  of  a  reaction, 
the  ably  managed  trust  tends  toward  conservatism.  As  compared 
with  the  action  of  a  horde  of  small  competitors  under  similar  condi- 
tions, it  is  likely  during  a  period  of  prosperity  to  refrain  from 
marking  up  prices  to  the  top  notch,  and  to  make  a  more  adequate 
provision  for  the  contingencies  of  the  market.  With  this  is  likely 
to  be  associated  a  greater  prevision,  which  succeeds  in  a  more 
correct  adjustment  of  present  investment  to  future  needs.  The 
drift  of  business  in  its  newer  form  is  thus  toward  a  relative  checking 
of  the  discrepancy  between  estimated  and  actual  earnings,  or,  in 
other  words,  toward  a  retardation  in  the  process  of  overcapitaliza- 
tion. The  influence  of  trusts  in  moderating  crises  and  in  minimizing 
depressions  will  doubtless  become  more  apparent  with  each  ensuing 
decade. 

D.     THE  COURSE  OF  A  CRISIS 
106.     The  Course  of  the  Panic  of  1893" 

BY  ALEXANDER  D,   NOYES 

The  public  mind  was  on  the  verge  of  panic.  During  a  year  or 
more,  it  had  been  continuously  disturbed  by  the  undermining  of  the 
Treasury,  a  process  visible  to  all  observers.  The  financial  situation 
in  itself  was  vulnerable.  In  all  probability,  the  crash  of  1893  would 
have  come  twelve  months  before,  had  it  not  been  for  the  accident 
of  1891's  great  harvest,  in  the  face  of  European  famine. 

The  panic  of  1893,  in  its  outbreak  and  in  its  culmination,  followed 
the  several  successive  steps  familiar  to  all  such  episodes.  One  or 
two  powerful  corporations,  which  had  been  leading  in  the  general 
plunge  into  debt,  gave  the  first  signals  of  distress.  On  February 
20th,  the  Philadelphia  and  Reading  Railway  Company,  with  a  capital 
of  forty  millions  and  a  debt  of  more  than  $125,000,000,  went  into 
bankruptcy;  on  the  5th  of  May,  the  National  Cordage  Company, 
with  twenty  millions  capital  and  ten  millions  liabilities  followed  suit. 
The  management  of  both  these  enterprises  had  been  marked  by  the 
rashest  sort  of  speculation;  both  had  been  favorites  on  the  specu- 
lative markets.  The  Cordage  Company  in  particular  had  kept  in  the 
race  for  debt  up  to  the  moment  of  its  ruin.  In  the  very  month  of 
the  company's  insolvency,  its  directors  declared  a  heavy  cash  divi- 
dend ;  paid,  as  may  be  supposed,  out  of  capital.    In  January,  National 

** Adapted  from  Forty  Years  of  American  Finance,  182-206.  Copyright 
by  G.  P.  Putnam's  Sons  (1909). 


226  CURRENT  ECONOMIC  PROBLEMS 

Cordage  stock  had  advanced  twelve  per  cent  on  the  New  York 
market,  selling  at  147.  Sixteen  weeks  later,  it  fell  below  ten  dollars 
per  share,  and  with  it,  during  the  opening  week  of  May,  the  whole 
stock  market  collapsed.  The  bubble  of  inflated  credit  being  punc- 
tured, a  general  movement  of  liquidation  started.  This  movement 
immediately  developed  very  serious  symptoms. 

Panic  is  in  its  nature  unreasoning ;  therefore,  although  the  finan- 
cial fright  of  1893  arose  from  fear  of  depreciation  of  the  legal 
tenders,  the  first  act  of  frightened  bank  depositors  was  to  withdraw 
these  very  legal  tenders  from  their  banks.  Experience  has  taught 
depositors  that  in  a  general  collapse  of  credit  the  banks  would  prob- 
ably be  the  first  marks  of  disaster.  Instinct  led  them  to  get  their 
money  out  of  the  banks  and  into  their  own  possession  with  the  least 
possible  delay,  therefore  when  the  depositors  of  interior  banks  de- 
manded cash,  and  such  banks  had  in  immediate  reserve  a  cash  fund 
amounting  to  only  six  per  cent  of  their  deposits,  it  followed  that  the 
Eastern  "reserve  agents"  were  drawn  upon  in  enormous  sums. 

On  the  New  York  banks  the  strain  was  particularly  violent. 
During  the  month  of  June  the  cash  reserves  of  banks  in  that  city 
decreased  nearly  twenty  millions ;  during  July,  they  fell  off  twenty- 
one  millions  more.  The  deposits  entrusted  to  them  by  interior 
institutions  had  been  loaned,  acording  to  the  banking  practice,  in 
the  Eastern  market ;  their  sudden  recall  in  quantity  forced  the  East- 
ern banks  to  contract  their  loans  immediately.  But  in  a  market 
already  struggling  to  sustain  itself  from  wreck,  such  wholesale  im- 
pairment of  resources  was  a  disastrous  blow.  In  the  closing  days  of 
June,  the  New  York  money  rate  on  call  advanced  to  seventy-four 
per  cent,  time  loans  being  wholly  unobtainable.  The  early  with- 
drawals by  depositors  in  the  country  banks  were  only  a  slight  indi- 
cation of  what  was  to  follow.  In  July,  this  Western  panic  had 
reached  a  stage  which  seemed  to  foreshadow  general  bankruptcy. 
Two  classes  of  interior  institutions  went  down  immediately — the 
weaker  savings  banks,  and  private  banl<s,  distributed  in  various  pro- 
vincial towns,  which  had  fostered  speculation  through  the  use  of 
their  combined  deposits  by  the  men  who  controlled  them  all. 

In  not  a  few  instances,  country  banks  were  forced  to  suspend  at 
a  moment  when  their  own  cash  reserves  were  on  their  way  to  them 
from  depository  centers.  Out  of  the  total  of  one  hundred  and  fifty- 
eight  national  bank  failures  of  the  year,  one  hundred  and  fifty-three 
were  in  the  West  and  South.  How  wide-spread  the  destruction  was 
among  other  interior  banking  institutions  may  be  judged  from  the 
fact  that  the  season's  record  of  suspension  comprised   172  State 


THE  BUSINESS  CYCLE  227 

banks,  177  private  banl<s,  47  savings-banks,  13  loan  and  trust  com- 
panies, and  16  mortgage  companies. 

During  the  month  of  July,  in  the  face  of  their  own  distress,  the 
New  York  banks  were  shipping  every  week  as  much  as  $11,000,000 
cash  to  these  Western  institutions.  Ordinarily,  such  an  enorrnous 
drain  would  have  found  compensation  in  import  of  foreign  gold, 
and,  in  fact,  sterling  exchange  declined  far  below  the  normal  gold 
import  point.  But  the  blockade  of  credit  was  so  complete  that  oper- 
ations in  exchange,  even  for  the  import  of  foreign  specie,  were  im- 
practicable. Banks  with  impaired  reserves  would  not  lend  even  on 
the  collateral  of  drafts  on  London. 

So  large  a  part,  indeed,  of  the  Clearing-House  debit  balances 
were  now  discharged  in  loan  certificates  that  a  number  of  banks 
adopted  the  extreme  measure  of  refusing  to  pay  cash  for  the  checks 
of  their  own  depositors.  Long  continued,  a  situation  of  this  kind 
must  reduce  a  portion  of  the  community  almost  to  a  state  of  barter ; 
and  in  fact  a  number  of  large  employers  of  labor  actually  made 
plans  in  1893  to  issue  a  currency  of  their  own,  redeemable  when 
the  banks  had  resumed  cash  payments.  On  the  25th  of  July,  the 
Erie  Railroad  failed,  the  powerful  Milwaukee  Bank  suspended,  and 
the  situation  appeared  well-nigh  hopeless. 

Relief  came  in  two  distinct  and  remarkable  ways.  Large  as  the 
volume  of  outstanding  loan  certificates  already  was,  three  New  York 
banks  combined  to  take  out  three  to  four  millions  more,  and  this 
credit  fund  was  wholly  used  to  facilitate  gold  imports.  At  almost 
the  same  time,  the  number  of  city  banks  refusing  to  cash  depositors' 
checks  had  grown  so  considerable  that  well-known  money-brokers 
advertised  in  the  daily  papers  that  they  would  pay  in  certified  bank 
checks  a  premium  for  currency.  This  singular  operation  virtually 
meant  the  sale  of  bank  checks  for  cash  at  a  discount.  Through  the 
money-brokers,  therefore,  depositors  paid  in  checks  the  face  value 
of  such  currency  as  was  offered,  plus  an  additional  percentage. 

This  premium  rose  from  one  and  a  half  to  four  per  cent,  and  at 
the  higher  figures  attracted  a  mass  of  hoarded  currency  into  the 
brokers'  hands.  This  expedient  was  applied  on  an  unusually  large 
scale,  and  it  had  the  good  result  of  helping  to  keep  the  wheels  of 
industry  moving.  Its  bad  result  was  that  it  caused  suspension  of 
cash  payments  in  the  majority  of  city  banks ;  for,  of  course,  when  a 
premium  of  four  per  cent  was  offered  in  Wall  Street,  for  any  kind 
of  currency,  it  was  out  of  the  question  for  the  banks  to  respond  un- 
hesitatingly to  demands  for  cash  by  speculative  depositors.  Most  of 
the  banks  cashed  freely  the  checks  of  depositors  where  it  was  shown 
that  the  cash  was  needed  for  personal  or  business  uses. 


228  CURRENT  ECONOMIC  PROBLEMS 

The  panic,  in  short,  had  ended,  but  not  until  the  movement  of 
liquidation  had  run  its  course.  The  record  of  business  failures  for 
the  year  gives  some  conception  of  the  ruin  involved  in  this  forced 
liquidation.  Commercial  failures  alone  in  1893  were  three  times  as 
numerous  as  those  of  1873,  and  the  aggregate  liabilities  involved 
were  fully  fifty  per  cent  greater.  It  was  computed  that  nine  com- 
mercial houses  out  of  every  thousand  doing  business  in  the  United 
States  failed  in  1873  J  '^^  1893,  the  similar  reckoning  showed  thirteen 
failures  in  every  thousand. 

107.     The  Course  of  the  Panic  of  1907^* 

BY  RALPH   SCOTT    HARRIS 

In  July,  1907,  it  was  felt  in  every  circle  that  business  trembled 
on  the  edge  of  an  abyss.  A  continued  money  stringency  forced 
Secretary  Cortelyou  in  August  to  make  deposits  in  banks  and  accept 
as  security  state,  municipal  and  railway  bonds.  Beginning  in  Sep- 
tember there  was  a  tone  of  ill-concealed  fright  among  the  most 
hopeful.  Only  the  financial  papers  attempted  to  coax  themselves 
back  into  the  old  confidence.  During  the  second  week  in  October 
call  loans  in  New  York  ranged  from  23^  to  6  per  cent ;  time  loans 
from  6  to  7  per  cent;  commercial  paper  from  7  to  7^  per  cent. 
In  these  two  weeks  there  were  twice  as  many  failures  as  in  the  same 
period  of  1906.  There  were  five  times  as  many  manufacturing 
failures  in  September,  1907,  as  in  September,  1906. 

A  series  of  bank  failures  precipitated  the  spectacular  part  of  the 
crisis.  The  first  intimation  of  upheaval  was  the  failure  of  the 
Stock  Exchange  firm  of  which  Otto  C.  Heinze  was  the  head.  The 
suspension  was  due  to  a  failure  to  corner  the  copper  market.  There 
was  a  well-defined  suspicion  that  F.  Augustus  Heinze,  president  of 
the  Mercantile  National  Bank,  was  interested  in  his  brother's  ven- 
tures, and  that  the  bank  was  being  "used"  in  this  connection.  He 
and  his  supposed  allies  fell  into  public  distrust.  Seven  banks  and  a 
trust  company  with  capital  of  $21,000,000  and  deposits  of  $71,- 
000,000  were  dominated  by  these  interests.  Believing  them  able  to 
weather  the  storm,  the  Clearing  House  Association  agreed  to  help 
them  out  if  Heinze  and  his  associates  were  eliminated.  This  was 
done.  A  few  days  later,  however,  the  National  Bank  of  "Commerce 
refused  to  clear  any  longer  for  the  Knickerbocker  Trust  Company, 
whose  president  was  thought  to  be  allied  with  the  suspected  inter- 
ests.   The  result  was  a  run  on  the  Knickerbocker  Trust  Company 

'^^ Adapted  from  Practical  Banking,  250-257.  Copyright  by  the  author 
Published  by  Houghton  Mifflin  Co.  (1915)- 


THE  BUSINESS  CYCLE  229 

which,  after  paying  out  $8,000,000  in  three  hours,  closed  its  doors. 
Runs  followed  on  the  Lincoln  Trust  Company  and  on  the  Trust 
Company  of  North  America.  Following  several  conspicuous  com- 
mercial failures,  other  banks  in  New  York  closed  for  safety's  sake. 

Meanwhile  the  money  scramble  began.  Banks  were  forced  to 
try  to  call  loans  to  be  prepared  for  the  demand  of  banks  and  indi- 
vidual depositors.  The  Secretary  of  the  Treasury  deposited  $35,- 
000,000  in  national  banks  in  New  York  in  four  days. 

Stock  Exchange  prices  collapsed.  A  syndicate,  headed  by  the 
late  J.  P.  Morgan,  stated  that  it  would  stand  under  the  market,  and 
placed  $25,000,000  on  call  at  10  per  cent;  later  $10,000,000  was  made 
available  at  50  per  cent,  the  high  price  being  fixed  to  discourage 
speculation.  Soon  the  banks  began  to  restrict  cash  payments ;  clear- 
ing-house loan  certificates  were  issued.  The  demand  for  cash 
started  a  premium  on  currency  the  next  week  which  continued  the 
rest  of  the  year.  It  ofifered  an  incentive  for  withdrawal  of  deposits. 
Large  failures  occurred  as  the  result  of  the  money  stringency.  On 
November  9  arrived  the  first  large  shipment  of  more  than  $100,- 
000,000  in  gold,  imported  to  relieve  the  money  stringency.  The 
banks  had  already  increa"^ed  their  circulating  notes  at  this  time. 

But  in  the  meantime  the  panic  had  seized  the  interior.  Banks  in 
most  of  the  cities,  over  25,000,  suspended  cash  payments.  The 
clearing-houses  stood  guaranty  on  certificates.  It  is  estimated  that 
over  $500,000,000  of  substitute  paper  was  issued.  The  country 
banks,  having  no  clearing-house  affiliations,  suffered  most.  Many 
failures  occurred  among  them. 

Shipments  of  money  to  the  West  were  made  from  New  York. 
These  varied  from  $4,400,000  for  the  week  ending  October  19,  to 
$22,600,000  for  the  week  ending  November  16.  In  the  week  ending 
January  4  the  tide  turned  and  $5,500,000  was  shipped  to  New  York. 
The  New  York  banks  supplied  the  country  with  $125,000,000  be- 
tween the  beginning  of  the  panic  and  the  first  of  1908.  Still  the 
reserves  of  the  Clearing-House  banks  were  not  seriously  depleted, 
the  importation  of  gold  and  the  federal  deposits  having  almost  oflFset 
the  loss  of  cash. 

Domestic  exchange  was  paralyzed,  New  York  drafts  selling 
from  sixty  cents  discount  to  ten  dollars  premium  in  diflFerent  parts 
of  the  country.  As  for  foreign  exchange,  the  ordinary  rules  apply- 
ing were  suspended.  Drafts  on  London  were  bought  when  the 
export  point  had  been  passed,  the  reason  prompting  buyers  being 
their  ability  to  sell  gold  at  a  premium. 

Common  stocks  fell,  as  did  preferred  stocks  and  bonds,  although 
not  to  so  low  a  point.     By  the  first  of  the  year  securities  took  a 


230  CURRENT  ECONOMIC  PROBLEMS 

brighter  outlook  on  life.  To  sustain  the  stock  market,  the  national 
banks  increased  loans  and  discounts  some  $63,000,000  between  the 
last  of  August  and  the  first  of  December.  This  was  in  addition  to 
the  syndicate  pool  of  $35,000,000  previously  mentioned. 

Perhaps  the  panic  could  have  been  localized  had  New  York 
bankers  been  able  to  meet  all  demands  without  restriction.  But 
restriction  inspired  country  banks  with  a  zeal  to  provide  for  any 
disaster.  Hoarding  followed.  In  December  most  country  banks 
had  higher  reserves  than  at  the  beginning  of  the  panic.  The  question 
which  each  country  banker  asked  himself  was.  Can  I  afford  to  be 
less  cautious  than  other  bankers  when  I  know  the  psychology  of 
"panics"  and  "runs"? 

Failures  drop  thick  and  fast  when  the  panic  is  past.  The 
financial  battlefield  is  gory  with  the  slain  and,  what  is  more,  the 
trampled.  And  failures  after  the  depression  sets  in  are  larger  and 
more  important.  From  3,635  failures  in  the  last  three  months  of 
1907,  bankruptcies  increased  to  4,909  in  the  first  quarter  in  1908. 

108.     The  Order  of  Events  in  a  Crisis" 

"  BY  ARTHUR  T.   HADli^Y 

The  order  of  events  in  a  crisis  is  generally  this : 

1.  A  shock  to  public  confidence  in  a  period  of  liberal,  not  to 
say  inflated,  credit,  creates  a  demand  for  ready  money.  No  one  is 
sure  that  his  neighbor  will  remain  solvent.  Each  man  is  therefore 
anxious  to  secure  himself  against  future  loss.  Every  borrower 
seeks  means  of  paying  his  obligations  and  increases  the  demand  for 
money ;  almost  every  capitalist  tries  to  enlarge  his  cash  reserves 
and  thus  lessens  the  available  supply. 

2.  This  increase  of  demand  and  diminution  of  supply  at  first 
puts  up  the  interest  rate  on  short-time  loans.  Money  is  needed  to 
tide  over  the  immediate  exigency,  and  every  one  is  willing  to  pay 
large  pricey  in  order  to  obtain  it.  But  this  is  only  a  temporary 
measure.  Under  the  stress  of  need  for  securing  money,  people  who 
have  engagements  to  meet  sell  their  goods  at  a  sacrifice  in  order 
to  obtain  it.  An  unusually  large  supply  of  products  and  securities 
is  thrown  upon  the  market  just  at  the  time  when  many  property 
owners  feel  themselves  least  able  to  invest,  and  when  some  con- 
sumers are  restricting  their  purchases  instead  of  expanding  them. 
The  temporary  increase  in  the  interest  rate  gives  place  to  a  more 
lasting  fall  in  prices. 

^'Adapted  from  Bionomics,  297-299.  Copyright  by  G.  P.  Putnam's  Sons 
(1896), 


THE  BUSINESS  CYCLE  231 

3.  Such  a  fall  in  prices  lowers  profits.  A  large  number  of 
people  have  niade  engagements  with  their  creditors  and  with  their 
employees  based  on  the  supposition  that  prices  will  continue  at  the 
old  level.  A  fall  in  price  renders  it  impossible  to  pay  interest  out 
of  current  earnings.  Readjustments  and  foreclosures  follow  one 
another  in  rapid  succession.  In  cases  where  the  lenders  of  money 
have  obtained  proper  security  the  contracts  are  maintained  at  the 
expense  of  the  principal  of  the  borrowers.  If  a  railroad  bond  is 
really  secured  by  stodc  behind  it,  the  loss  falls  on  the  stockholders, 
and  the  bondholders,  ultimately  at  any  rate,  receive  all  that  the  in- 
terest contract  calls  for.  But  if,  as  frequently  happens,  the  security 
has  been  a  delusive  one,  the  lenders  are  compelled  to  assent  to  a 
reduction  of  the  interest  which  they  believe  to  be  safely  guaranteed. 

4.  When  the  interest  contracts  have  been  in  large  measure  re- 
adjusted, the  chief  effect  on  wages  begins  to  make  itself  felt.  It 
might  be  supposed,  on  general  grounds,  that  a  fall  in  price  would 
affect  the  laborer  sooner  than  the  investor.  But  in  the  early  stages 
of  a  commercial  crisis  the  capitalist  is  not  in  a  position  to  dictate 
terms  to  his  laborers.  He  must  make  goods  and  sell  goods  at  any 
price,  in  order  to  keep  his  head  above  water.  As  long  as  it  lasts, 
the  cut-throat  competition  which  lowers  profits  prevents  the  demand 
for  labor  from  being  very  rapidly  lessened.  It  is  when  readjust- 
ments of  interest  have  been  made  that  the  laborers'  condition  be- 
comes worse.  After  foreclosure  sales  have  been  completed  and 
capital  is  reorganized  on  a  new  basis,  no  capitalist  is  necessarily 
compelled  to  work  at  a  loss,  and  some  probably  go  out  of  work  alto- 
gether. Under  these  circumstances  the  demand  for  labor  becomes 
appreciably  less  than  it  was,  and  the  price  offered  falls  rapidly. 

The  first  moderate  changes  are  as  a  rule  accepted  by  the  laborers 
as  inevitable,  but  as  reductions  become  more  sweeping  they  are  re- 
sisted, particularly  because  house  rents  and  consumers'  prices,  owing 
to  the  inertia  of  retail  trade;  do  not  fall  nearly  as  fast  as  producers' 
prices.  The  woricman  sees  his  wages  reduced  because  his  employer 
cannot  sell  goods  at  the  old  figure,  while  the  price  that  he  pays 
for  his  supplies  remains  nearly  the  same.  He  thinks  that  something 
is  wrong  and  strikes.  This  usually  indicates  the  beginning  of  the 
end  of  a  commercial  crisis.  It  has  become  a  proverb  in  the  financial 
world  that  railroad  strikes  give  no  help  to  those  who  are  trying  to 
depress  the  price  of  securities. 

On  the  contrary,  in  spite  of  the  losses  attending  such  conflicts,  it 
has  been  found  in  1877,  1885,  and  1894  that  the  price  of  securities 
in  general  began  to  go  up  at  the  very  time  when  matters  seemed 
to  be  at  their  worst.    There  are  two  reasons  for  this.    First,  strikes 


232  CURRENT  ECONOMIC  PROBLEMS 

cut  down  production  in  any  given  line  to  such  an  extent  as  to  enable 
competing  producers  to  dispose  of  their  products  or  services  more 
readily.  Second,  strikes  indicate  that  wage  contracts,  as  well  as  in- 
terest contracts,  have  been  readjusted  to  the  price  conditions  which 
prevail,  and  that  matters  have  therefore  reached  a  point  where 
speculators  can  make  arrangements  for  the  future  with  the  assur- 
ance that  the  marginal  price  charged  by  labor  and  capital  for  their 
services  does  not  exceed  the  market  price  which  the  consumers  are 
likely  to  pay  for  the  results  of  such  service. 

E.     FINANCIAL  AND  INDUSTRIAL  CONDITIONS 
DURING  A  CRISIS 

109.     A  Week  of  Financial  History^* 

Our  markets  have  been  more  disturbed  and  excited  this  week 
than  at  any  time  this  year.  The  situation  looked  unpromising  when 
the  week  opened,  and  became  daily  more  unsettled  until  Thursday, 
when  there  was  a  decided  improvement ;  but  yesterday  the  situation 
was  again  somewhat  less  favorable.  Monday  and  Tuesday  an  un- 
usual number  of  failures  among  our  banks  and  private  firms  were 
reported  in  various  parts  of  the  country,  but  especially  in  the  West, 
some  of  them  being  concerns  of  long  standing  and  held  in  high 
repute.  On  those  days,  too,  rumors  became  hourly  more  distinct 
respecting  the  difficulties  Erie's  floating  debt  was  causing  the  man- 
agement and  the  probability  of  its  becoming  needful  to  put  the  road 
into  the  hands  of  receivers.  Tuesday  afternoon  the  announcement 
was  made  that  receivers  for  the  company  had  been  appointed.  On 
Wednesday  the  failures  referred  to,  the  Erie  receivership,  and  the 
state  of  the  money  market  caused  an  unsettled  and  feverish  opening, 
which  conditions  were  used,  and  used  most  effectually,  by  those  seek- 
ing to  break  prices,  values  of  all  the  leading  stocks  gradually  melt- 
ing away.  This  decline  was  favored  by  the  fact  that  the  outside 
public  having  money  to  invest  either  looked  upon  the  Erie  receiver- 
ship as  a  more  disturbing  affair  than  the  step  warranted,  or  else 
were  discouraged  by  the  frequent  flurries  and  declines  in  prices 
which  have  occurred  of  late,  and  so  for  the  time  being  kept  off  the 
market.  The  next  day,  Thursday,  the  outlook,  as  already  stated, 
was  much  brighter,  and  so  it  was  yesterday,  though  there  was  some 
reaction  from  the  previous  day,  a  further  large  break  in  General 
Electric  stock  being  a  disturbing  feature. 

^*Commercial  and  Financial  Chronicle,  July  29,  1893,  162.  Copyright 
(1893). 


THE  BUSINESS  CYCLE  233 

Money  on  call  representing  bankers'  balances  was  not  stringent 
until  Wednesday.  The  loans  early  in  the  week  were  from  6  to  2  per 
cent,  the  latter  figure  being  recorded  on  Monday  after  the  inquiry 
for  the  day  had  been  satisfied  and  there  seemed  to  be  an  abundance 
oflFered.  The  demand  for  currency  for  shipment  to  the  West,  stim- 
ulated by  the  failure  of  the  "Mitchell"  bank  at  Milwaukee,  and  of 
banks  at  Louisville  and  Indianapolis,  was  urgent  on  Tuesday,  and 
on  the  following  day  a  calling  in  of  loans  by  some  of  the  banks  and 
trust  companies  in  this  city  and  in  Brooklyn  created  a  disturbance 
in  the  money  market,  while  the  fall  in  stock  values  induced  discrim- 
ination against  collateral,  and  the  rate  was  advanced  to  three-six- 
teenths of  I  per  cent  and  interest,  equal  to  about  74  per  cent  per 
annum,  and  large  amounts  were  loaned  at  one-eighth  of  i  per  cent 
and  interest,  equal  to  51  per  cent  per  annum.  On  Thursday  there 
was  an  early  demand  for  money  which  caused  51  per  cent  to  be  again 
recorded,  but  in  the  afternoon  the  rate  fell  to  6  per  cent.  Yesterday 
the  course  was  much  the  same,  the  range  being  51  and  2  per  cent, 
with  the  close  at  the  lowest  figure.  The  average  for  the  week  was 
probably  about  10  per  cent.  Renewals  were  at  from  6  to  8,  and 
while  banks  and  trust  companies  quoted  6,  very  little  was  loaned 
over  the  counter  at  this  figure,  and  the  institutions  that  had  money 
to  loan  oflFered  it  in  the  stock  exchange.  Time  contracts  continue 
in  urgent  demand  and  good  rates  are  bid,  but  the  supply  is  small 
and  chiefly  confined  to  private  sources.  Neither  banks  nor  trust 
companies  are  making  loans  on  time,  but  it  is  probable  that  a  few 
of  the  insurance  companies  and  other  corporations  have  yielded  to 
the  importunities  of  brokers.  The  basis  of  the  business  is  6  per 
cent;  in  addition  i  per  cent  commission  is  paid  for  thirty  days,  i^-^ 
per  cent  for  sixty  days,  and  2  per  cent  for  four  months.  Scarcely 
anything  is  done  in  commercial  paper,  and  the  few  transactions  made 
are  at  such  rates  as  can  be  agreed  upon.  Maiiy  of  the  jobbing  com- 
mission houses  are  advising  the  mills  with  which  they  do  business 
to  shut  down,  as  it  is  impossible  at  present  to  make  advances,  and 
many  of  the  mills  at  the  East  are  consequently  closing. 

no.     General  Industrial  Conditions  in  a  Crisis" 

W^hile  special  telegrams  from  many  points  South  and  West  re- 
port a  more  hopeful  feeling  in  financial  and  commercial  circles,  due 
to  the  increased  currency  issue  by  New  York  national  banks,  the 
gold  afloat  for  the  United  States,  and  in  the  expectation  that  Con- 
gress will  promptly  repeal  the  compulsory  purchase  of  silver  clause 

"Adapted  from  Bradstreet's,  August  5  and  12,  1893,  495,  511. 


234  CURRENT  ECONOMIC  PROBLEMS 

of  the  Sherman  Act,  the  week  has,  on  the  whole,  brought  more  un- 
favorable features  in  the  apparent  hoarding  and  scarcity  of  currency 
East  and  West,  the  near  approach  of  the  demand  for  funds  to  "move 
the  crops,"  the  increase  in  the  shut-down  movement  by  manufactur- 
ers in  New  England,  Middle  and  Central  Western  States,  and  the 
clog  to  trade  shown  by  prohibitive  rates  for  New  York  exchange 
at  centers  East,  West,  and  Northwest.  Chicago  packers  and  grain 
shippers  selling  to  interior  eastern  points,  having  been  unable  to 
sell  their  New  York  exchange,  are  ordering  the  currency  to  pay  for 
stuff  shipped  direct  by  express,  thus  doing  away  with  banks.  At 
New  York  credit  of  both  banks  and  commercial  interests  is  unim- 
paired, but  actual  money  is  scarce  and  commands  a  premium.  The 
arrival  of  gold  in  transit  is  expected  to  clear  the  atmosphere  and 
relieve  pressure.  Demands  for  actual  currency  from  all  quarters  on 
New  York  are  pressing.  The  scarcity  of  small  notes  and  silver  dol- 
lars is  a  feature.  Banks  are  generally  refusing  or  complying  only 
partially  with  requests  for  large  sums. 

The  irrational  but  widespread  hoarding  of  currency  has  com- 
pelled jobbers  and  manufacturers  in  many  instances  to  do  business 
more  nearly  than  ever  on  a  cash  basis,  which  has  resulted  in  a  further 
restriction  of  trade  throughout  the  country.  This  is  accompanied 
by  such  signs  of  aggravation  as  increased  difficulty  in  disposing  of 
commercial  paper,  a  still  greater  scarcity  of  currency  at  larger  cen- 
ters, and  a  shut-down  movement  among  industrial  establishments; 
the  latter,  together  with  curtailment  of  forces  in  that  and  in  com- 
mercial lines,  points  to  the  enforced  idleness  of  nearly  1,000,000 
wage-earners  within  the  past  two  months,  as  compared  with  not 
more  than  400,000  at  the  close  of  1884,  the  previous  year  of  greatest 
business  deprfession.  The  wedc's  bank  clearings  total  is  the  smallest 
of  recent  years — ^$802,000,000 — 17  per  cent  less  than  last  week  and 
20  per  cent  less  than  in  the  week  of  1892. 

A  hand  to  mouth  demand  for  staples  is  reported  from  Boston ; 
many  leading  industries  have  shut  down,  currency  is  scarcer,  com- 
mercial paper  is  ignored,  and  general  business  rather  more  clogged 
than  last  week,  all  of  which  applies  as  well  to  New  York,  Philadel- 
phia, Baltimore,  and  Pittsburg. 

Increased  demands  from  country  banks  make  currency  scarcer 
at  Cleveland  and  Cincinnati,  where  previous  dullness  is  intensified. 
Business  at  Louisville  is  almost  at  a  standstill,  banks  declining  to 
receive  country  checks  even  for  collection,  and  preferring  not  to 
handle  New  York  exchange.  General  trade  is  almost  on  a  cash 
basis  at  Indianapolis,  and  reduced  in  volume,  which  is  also  true  at 
Milwaukee.    Chicago  bankers  are  hopeful,  owing  to  the  heavy  gold 


THE  BUSINESS  CYCLE  235 

importations,  but  orders  left  with  jobbers  are  held  awaiting  crop 
advices,  some  of  the  latter  being  doubtful.  St.  Paul,  Minneapolis, 
and  Duluth  jobbers  are  doing  a  hand  to  mouth  business,  awaiting 
a  change  in  the  situation.  St.  Louis  reports  a  shrinkage  in  the  vol- 
ume of  sales  of  dry  goods  and  hardware,  while  at  Omaha  banking 
accommodations  and  the  volume  of  trade  continue  in  reduced  vol- 
ume. Live  stock  receipts  are  smaller,  with  higher  prices,  and  the 
corn  crop  is  damaged  in  western  Nebraska. 

111.  The  Premium  on  Currency  in  1893*' 

Other  than  the  President's  message  and  the  meeting  of  Congress, 
which  we  have  remarked  upon  in  a  subsequent  column,  the  premium 
on  gold  and  currency  that  has  prevailed  has  been  the  important  topic. 
This  feature  in  the  situation  we  referred  to  last  week  when  it  had 
developed  only  very  moderate  proportions.  From  that  beginning, 
however,  the  demand  for  currency  gradually  grew  more  urgent,  the 
premium  rising  as  high  even  as  5  per  cent,  disclosing  a  marked  scarc- 
ity of  currency,  not  alone  in  this  city  but  very  noticeable  at  Phila- 
delphia and  Boston  in  the  East  and  Chicago  and  other  centers  in  the 
West.  All  kinds  of  currency  were  in  request  including  even  stand- 
ard silver  dollars.  Foreign  bankers  also  report  that  ij^  per  cent 
was  paid  for  gold  to  arrive.  Of  course  the  gold  import  movement 
had  been  affected  by  these  operations,  which  in  turn  have  raised 
foreign  exchange  rates  materially,  since  the  premium  paid  raises 
the  power  of  exchange  and  consequently  the  point  at  which  gold 
can  be  imported  at  a  profit.  Thursday,  however,  there  were  decided 
indications  that  the  transactions  in  currency  had  culminated.  On 
that  day  the  supply  was  increased  by  large  offerings  and  the  demand 
slackened.  Yesterday  the  same  conditions  continued  to  prevail,  and 
the  premium  on  currency  dropped  to  i^i  and  2  per  cent. 

112.  The  Hoarding  of  Currency  in  1893^^ 

BY   J.   DlJ    Wn^'    WARNER 

Then  developed  the  feature  that  will  forever  characterize  the 
stringency  of  1893 — instructive  to  those  who  have  not  already  learn- 
ed how  immaterial  is  any  ordinary  supply  of  legal  currency  when 
compared  with  credit  in  its  various  forms — the  real  currency  of  the 

^'Commercial  and  Financial  Chronicle,  August  12,  1893,  196. 
*^ Adapted  from  Sound  Currency  Year  Book,  240  (1896). 


236  CURRENT  ECONOMIC  PROBLEMS 

country.  Almost  between  morning  and  night  the  scramble  for  cur- 
rency had  begun  and  culminated  all  over  the  country,  and  the  pre- 
posterous bulk  of  our  circulating  medium  had  been  swallowed  up 
as  effectually  as,  in  a  scarcely  less  brief  period,  gold  and  silver  had 
disappeared  before  the  premium  on  specie  a  generation  before.  Cur- 
rency was  hoarded  until  it  became  so  scarce  that  it  had  to  be  bought 
as  merchandise  at  a  premium  of  i  to  3  per  cent  in  checks  payable 
through  the  clearing-house;  and  to  enable  their  families  to  meet 
petty  bills  at  the  summer  resorts  the  merchant  and  professional  men 
of  the  cities  were  forced  to  purchase  and  send  express  packages  of 
bills  or  coin ;  while  savings  banks  hawked  their  government  bond 
investments  about  the  money  centers  in  a  vain  attempt  to  secure 
currency. 

113.     Estimate  of  Money  Hoarded  in  1907^* 

The  national  banks  held  $40,839,000  less  cash  on  December  3 
than  on  August  22.  And  yet,  during  this  period,  the  government 
increased  its  deposits  in  the  national  banks  by  $80,000,000,  and  there 
was  imported  about  $70,000,000  in  gold.  Considering  this  increase 
of  about  $150,000,000,  and  the  loss  of  $40,839,000,  more  than 
$190,000,000  of  cash  was  taken  out  of  the  national  banks  in  this 
period.  It  is  quite  certain  that  neither  the  savings  banks  nor  the 
trust  companies  increased  their  cash  holdings  by  any  such  amount. 
In  fact,  they  had  to  close  their  doors  to  prevent  the  withdrawal  of 
cash.  It  is  probable  that  the  trust  companies  of  the  country  lost 
considerable  cash,  and  that  the  savings  banks  gained  none  during 
this  period.  In  ordinary  years  the  national  banks  lose  but  little  cash 
by  crop  movements — say  $25,000,000.  This  is,  perhaps,  considerably 
less  than,  the  shrinkage  this  year  in  the  cash  holdings  of  the  trust 
companies.  It  would  appear,  then,  that  fully  $200,000,000  of  cash 
this  year  disappeared  from  our  banks  between  August  22  and  De- 
cember 3. 

114.     Economies  in  Credit^^ 

In  view  of  the  action  taken  by  the  New  York  Clearing  House, 
and  subsequently  adopted  by  Chicago,  St,  Louis,  Philadelphia,  Cin- 
cinnti,  New  Orleans,  Nashville,  Birmingham,  Baltimore,  Louisville, 
Memphis,  Montgomery,  Mobile,  and  many  other  principal  cities 
throughout  the  country,  restricting  the  shipment  of  currency,  and 

"Adapted  from  an  editorial  in  Moody's  Magazine,  V,  80.  Copyright 
(1908). 

^•Resolutions  passed  by  the  Atlanta  Clearing  House,  October  30,  1907. 


THE  BUSINESS  CYCLE  237 

the  restriction  of  other  business  to  its  proper  channel,  the  Clearing 
House;  therefore,  be  it 

Resolved  by  the  Atlanta  Clearing  House  Association — 

1.  That  until  further  notice  collections  and  bank  balances  be 
settled  in  exchange  for  clearing-house  certificates. 

2.  That  checks  drawn  on  the  members  of  this  association  be 
paid  through  the  Atlanta  Clearing  House,  and  correspondents  be 
requested  to  so  stamp  their  checks. 

3.  That  payments  against  all  accounts,  including  certificates 
of  deposit,  be  limited  to  $50  in  one  day,  or  $100  in  one  week. 

4.  That  exception  shall  be  made  to  the  above  in  case  of  pay 
rolls,  which  shall  be  paid  as  follows:  All  denominations  of  $5  and 
over  in  clearing-house  certificates,  and  all  denominations  of  under 
$5  to  be  paid  in  cash  as  desired. 

Resolved  further.  That  the  manager  of  the  Atlanta  Clearing 
House  Association  be  instructed  to  give  notice  to  the  correspondents 
of  the  Atlanta  Clearing-House  banks  that  the  above  resolution  is  in 
effect  on  and  after  this  date  and  until  further  notice. 

115.     Shipment  of  Currency  to  the  Interior^" 

The  clearing-house  committee  knew  by  experience  that  the  dis- 
sipation of  the  New  York  banking  reserve,  upon  which  practically 
the  credit  volume  of  the  nation  rests,  would  alarm  the  nation,  in- 
tensify the  panic,  and  greatly  prolong  the  period  of  recuperation. 
New  York  bankers  have  been  severely  criticised  because  they  did 
not  more  fully  cespond  to  the  demands  of  country  correspondents 
by  shipping  currency  against  balances.  To  have  fully  honored  the 
demands  that  w^ere  pouring  in  from  all  sections  of  the  country 
would  have  dissipated  our  banking  reserve  in  a  fortnight.  How 
could  it  be  replenished?  Were  the  interior  bankers  sending  cur- 
rency to  New  York?  What  would  have  been  the  effect  upon  the 
country  if  the  New  York  banking  reserve  had  been  entirely  de- 
pleted? It  would  have  so  intensified  the  panicky  feeling  that  wide- 
spread commercial  disaster  would  have  resulted.  The  $53,000,000 
deficit  in  our  banking  reserve  occurred  in  less  than  ten  days  after 
the  failure  of  the  Knickerbocker  Trust  Company,  and  was  caused 
by  the  shipment  to  interior  institutions  of  the  larger  portion  of  that 
amount  in  that  short  time.  We  kept  the  door  of  our  treasure  house 
wide  open  until  for  the  good  of  the  whole  country  it  became  neces- 
sary everywhere  to  close  it.  It  never  was  fully  closed;  currency 
shipments  continued  in  a  restricted  way  throughout  the  panic,  and  a 

^"Commercial  and  Financial  Chronicle,  October  10,  1908,  84. 


238  CURRENT  ECONOMIC  PROBLEMS 

larger  number  of  our  banks  kept  up  their  counter  payments  as 
usual. 

F.     INDUSTRIAL  CONDITIONS   DURING  A 
DEPRESSION 

116.     Panics  versus  Depressions** 

BY  GEORGE   H.    HUI^lv 

Panic  is  defined  as  "a  sudden,  unreasoning,  overpowering  fear, 
especially  when  affecting  a  large  number  simultaneously."  A 
"Financial  Panic"  is,  therefore,  the  effect  produced  upon  the  finances 
of  a  country  by  sudden,  unreasoning,  and  overpowering  fright. 

Depression  is  defined  as  "a  state  of  dullness  or  inactivity;  a 
protracted  season  when  business  falls  below  the  normal."  "Indus- 
trial Depression,"  therefore,  means  literally  a  state  of  dulness  or 
inactivity  in  the  industries  of  the  country;  a  protracted  season  dur- 
ing which  the  production  of  buildings,  furniture,  goods,  machinery, 
etc.,  falls  below  the  normal. 

A  financial  panic  is  precipitated  by  sudden,  excited,  and  im- 
prudent action.  An  industrial  depression  is  precipitated  by  deliber- 
ate, thoughtful,  and  prudent  inaction.  One  is  the  result  of  mental 
excitement,  which  results  in  a  temporary  check  to  a  natural  flow  of 
the  media  of  exchange.  It  is  a  mental  disorder.  The  other  is  the 
effect  of  calm,  deliberate  consideration,  which  results  in  reducing 
the  rate  of  production  of  materials  of  physical  wealth.  It  is  a 
physical  disorder.  ^ 

A  financial  panic  is  an  acute  malady.  Its  beginning  is  sudden, 
intense,  vivid,  and  startling.  Its  chief  element  is  fright.  It  par- 
alyzes finances  at  a  single  blow.  Each  subsequent  step  in  its  course 
is  an  alleviation.  Each  day,  week  or  month  shows  a  marked  re- 
covery.    From  its  nature  and  intensity  it  is  short-lived. 

An  industrial  depression  is  a  stubborn,  chronic  malady.  Its  be- 
ginning is  gradual  and  quiet.  It  commences  and  goes  on  increasing 
in  force  for  many  months,  unnoticed.  Its  cause  is  silently  doing  its 
fatal  work  while  actual  business  is  increasing  by  leaps  and  bounds. 
When  actual  depression  appears,  its  cause  has  almost  ceased  to 
exist.  From  its  nature  and  its  deep-seated  growth  industrial  depres- 
sion is  long-lived. 

A  financial  panic  is  usually  a  matter  of  a  few  months,  weeks,  or 
days.  An  industrial  depression  is  usually  a  matter  of  one  or  more 
years. 

"^Adapted  from  Industrial  Depressions,  18-20.  Copyright  by  Frederick 
A.  Stokes  Co.  (igii). 


THE  BUSINESS  CYCLE  239 

A  financial  panic  may  be  compared  to  a  mob,  in  which  a  great 
number  of  excited  minds  work  upon  and  incite  each  other  until 
men  act  in  a  body  as  no  one  of  them  would  act  if  left  to  himself. 
Industrial  depressions,  on  the  other  hand,  are  the  cumulative  results 
of  the  deliberate  and  thoughtful  decisions  of  individual  men. 

These  two  calamities  can  be  classed  together  only  because  the 
results  of  each  have  a  disastrous  effect  upon  business.  A  panic  has 
an  effect  which  is  short,  exciting,  and  a  temporary  disaster,  not  to 
existing  material  wealth,  but  to  the  documentary  representatives  of 
wealth ;  a  loss  from  which  the  country  may  entirely  recuperate  with- 
in a  short  time.  The  other  is  a  compulsory  laying  down  of  the  tools 
which  produce  wealth,  by  a  vast  army  of  wealth-creators;  a  loss 
that  can  no  more  be  regained  than  a  lost  day  or  year  can  be  re- 
gained. 

117.    The  Extent  of  the  Depression  of  1907-8" 

A  few  facts  and  figures  will  indicate  the  extent  of  the  present 
industrial  depression.  Bank  exchanges  at  all  the  leading  cities  of 
the  United  States  were  $2,073,910,424  for  the  week  ending  Januar>' 
30,  1908,  a  decrease  of  23.3%  compared  with  the  corresponding 
week  of  1907,  and  37.2%  compared  with  the  corresponding  week 
of  1906.  The  decrease  in  New  York  and  Philadelphia  exceeded 
28%,  compared  with  1906,  and  was  greater  than  in  any  other  cities. 

For  the  first  two  weeks  of  January,  1908,  gross  earnings  of 
railroads  were  about  13%  less  than  in  1907.  For  the  last  week  in 
December  they  were  15.52%  below  those  of  1906.  For  the  entire 
month  of  December  gross  earnings  were  1.13%,  while  net  earnings 
were  17.46%  less  than  were  those  for  December,  1906. 

Transactions  of  the  New  York  stock  exchange  amounted  to 
16,634,817  shares,  compared  with  22,712,420  in  January,  1907.  The 
decline  in  the  prices  of  commodities  in  the  last  few  months  has  been 
about  10%. 

The  sharp  falling  off  in  the  net  earnings  of  the  United  States 
Steel  Corporation  in  the  last  quarter  of  1907  show  the  remarkable 
decline  in  industr)%  The  net  earnings  fell  from  $17,052,211,  in  Oc- 
tober, to  $10,467,253,  in  November,  and  to  $5,034,531,  in  December. 
This  is  a  decline  of  over  70%. 

The  unparalleled  number  of  idle  cars  affords  a  barometer  of  our 
industrial  condition.  Today  there  are  approximately  320,000  freight 
cars  and  8,000  locomotives  standing  idle,  representing  an  invest- 
ment of  more  than  $400,000,000,  and  there  are  more  than  30,000 

**Adapted  from  an  editorial  in  Moody's  Magazine,  V,  151-154.  Copy- 
right (January,  1908). 


240  CURRENT  ECONOMIC  PROBLEMS 

unemployed  trainmen.  And  yet  three  months  ago  there  were  not 
enough  railroad  cars  to  move  the  traffic  of  the  country. 

The  money  market  affords  one  of  the  best  barometers  of  the 
great  change  that  has  come  over  the  industrial  situation.  From  a 
deficit  of  $54,103,600  on  November  23,  in  the  surplus  reserves  of 
the  New  York  Associated  Banks,  there  w^as  a  surplus  of  $40,626,725 
on  February  i.  From  rates  of  25%  or  more,  last  fall  for  call  money. 
we  now  have  rates  of  less  than  2%.  From  rates  of  from  7  to  12%  for 
time  money  last  fall,  we  now  have  rates  of  from  4  to  43^%  on  Stock 
Exchange  collateral,  and  from  5  to  6%  on  commercial  paper.  The 
return  of  hoarded  money  and  .the  slackening  demand  for  money  in 
industrial  and  commercial  operations  are  mainly  responsible  for  this 
sudden  transformation  of  the  money  market. 

Already  gold  exports  have  begun  from  this  country.  They  may 
reach  a  considerable  volume  before  next  July.  Money  rates,  how- 
ever, may  be  expected  to  remain  about  as  at  present.  Money  rates 
are  being  followed  by  rising  prices  for  bonds  and  other  secure 
securities.  During  January  the  price  of  bonds  rose  about  twice  as 
much  as  the  price  of  common  stocks.  Under  existing  conditions 
investors  find  bonds  very  attractive  in  view  of  the  uncertainty  of 
the  situation.  Many  interior  banks  have  put  their  idle  funds  in 
bonds  on  account  of  the  comparatively  high  interest  return  they 
can  secure  by  such  a  course. 

G.    TYPICAL  THEORIES  OF  CRISES 
118.    The  Fruits  of  the  Exploitation  of  Labor^^ 

BY  FRANK   K.   FOSTER 

Once  in  about  so  many  years  this  country  is  afflicted  with  what 
we  call  "hard  times."  It  is  a  striking  instance  of  the  limitations 
of  human  wisdom  that  the  wise  men  have  not  been  able  to  diagnose 
the  causes  of  such  periodic  bad  spells.  It  will  not  answer  to  place 
the  responsibility  upon  causes  beyond  human  control.  Somebody  is 
to  blame.    Who  is  it? 

The  industrial  world  is  complex.  A  thousand  and  one  in- 
fluences play  upon  it.  Fictitious  values  are  created.  Watered 
stocks  and  inflated  mergers  act  as  sponges  to  soak  up  the  products 

'•Adapted  from  "Who  Does  It?"  in  The  Causes  of  Industrial  Panics  in 
the  United  States.  16-18,  Published  by  the  Chicago  Federation  of  Labor 
(1903). 


THE  BUSINESS  CYCLE  241 

of  honest  effort.  Speculative  pools  force  up  prices  abnormally. 
All  these  things  help  to  bring  about  crises. 

But  there  is  one  simple  and  all-pervasive  question,  rarely  if 
ever  taken  into  account,  which  explains  much ;  one  condition  which, 
more  than  any  other,  works  toward  the  glut  of  markets  and  the 
periodic  depression  of  industry.  This  axiomatic  proposition  may 
be  formulated  thus:  "So  long  as  those  who  produce  wealth  do 
not  receive  for  their  labor  a  return  sufficient  to  enable  them  to  buy 
back  the  equivalent  of  what  they  themselves  produce,  congestion 
is  inevitable  and  depressions  will  recur.  These  depressions  will 
vary  in  frequency  and  intensity  in  direct  ratio  to  the  discrepancy  be- 
tween values  earned  and  received." 

The  term  "producers  of  wealth"  is  by  no  means  confined  to  those 
who  work  with  their  hands.  The  rational  estimate  must  accord  its 
full  weight  to  those  who  direct,  invent,  organize,  and  simplify  proc- 
esses of  production.  But,  when  all  else  is  said,  the  laborer,  as 
making  up  the  great  bulk  of  the  market  for  staple  products,  is  the 
main  factor,  and  his  wage-rate  and  consequent  standard  of  living 
most  acutely  modify  the  demand  for  manufactured  products. 

The  working  of  this  principle  can  best  be  seen  by  application. 
Suppose,  for  illustration,  that  the  wages  and  standard  of  living  of 
all  American  mechanics  were  to  be  at  once  crowded  down  to  the  level 
of  the  laborer  recently  arrived  from  Southern  Europe.  It  requires 
Httle  perspicacity  to  foretell  the  result  of  such  a  metamorphosis  on 
American  manufactures.  There  would  be  almost  immediately  whole- 
sale stoppages  in  all  those  thousand  and  one  industries  now  supported 
by  the  home  market. 

But  that  which  is  true  in  the  extreme  case  is  also  true  in  degree 
in  the  rise  and  fall  of  wages  in  narrower  margins.  A  decrease  of  10 
per  cent  in  wages  all  along  the  line  in  American  industry  means  that 
hundreds  of  millions  of  dollars  less  will  be  spent  for  manufactured 
products.  And  every  reduction  in  wages  operates  in  the  same  direc- 
tion, while  every  increase — up,  of  course,  to  the  absorption  of  the 
full  margin  of  profit — means  a  stimulation  of  the  market. 

It  is  not  the  millionaires  who  use  up  the  products  of  most  wealth- 
producers,  but  the  people  of  moderate  means,  who  depend  upon 
their  daily  labor  for  their  daily  bread.  Consequently  panics  will 
recur  until  the  margin  of  profit  in  the  production  of  commodities  goes 
to  the  producer  instead  of  to  the  speculator  or  the  exploiter. 


242  CURRENT  ECONOMIC  PROBLEMS 

119.    The  Impossibility  of  Over-Production** 

BY  JOHN  STUART  MII,L 

Dearth,  or  scarcity,  on  the  one  hand,  and  over-supply,  or,  in 
mercantile  language,  glut,  on  the  other,  are  incident  to  all  commodi- 
ties. Because  this  phenomena  of  over-supply  may  exist  in  the  case 
of  any  one  commodity,  many  persons  have  thought  that  it  may  exist 
with  regard  to  all  commodities ;  that  there  may  be  a  general  over- 
production of  wealth;  and  a  consequent  depressed  condition  of  all 
classes  of  producers. 

The  doctrine  seems  to  me  to  involve  so  much  inconsistency  in 
its  very  conception  that  I  feel  considerable  difficulty  in  giving  any 
clear  statement  of  it.  In  general  the  theory  is  that  there  may  be  an 
excess  of  productions  in  general  beyond  the  demand  for  them ;  that 
when  this  happens,  purchasers  cannot  be  found  at  prices  which 
will  repay  the  cost  of  production;  that  there  ensues  a  general  de- 
pression of  prices.  The  advocates  of  this  theory  maintain  that 
the  accumulation  of  capital  may  proceed  too  fast;  and  enjoin  the 
rich  to  guard  against  this  evil  by  an  ample  unproductive  consump- 
tion. 

When  writers  speak  of  the  supply  of  commodities  outrunning 
the  demand,  it  is  not  clear  which  of  two  elements  of  demand  they 
have  in  view;  the  desire  to  possess,  or  the  means  to  purchase.  In 
this  uncertainty  it  is  necessary  to  examine  both  suppositions. 

First,  let  us  suppose  that  the  quantity  of  commodities  produced 
is  not  greater  than  the  community  would  be  glad  to  consume.  Is  it 
possible,  in  that  case,  that  there  should  be  a  deficiency  of  demand, 
for  want  of  the  means  of  payment?  Those  who  think  so  cannot 
have  considered  what  it  is  which  constitutes  the  means  of  payment 
for  commodities.  It  is  simply  commodities.  All  sellers  are  in- 
evitably buyers.  Could  we  suddenly  double  the  productive  powers 
of  the  country,  we  should  double  the  supply  of  commodities  in  every 
market ;  but  we  should  also  double  the  purchasing  power.  Everyone 
would  bring  to  the  market  a  double  demand  as  well  as  supply.  It  is 
probable  that  there  would  be  a  superfluity  of  certain  things.  If  so, 
the  supply  will  adapt  itself  accordingly,  and  the  values  of  things 
will  continue  to  correspond  to  their  cost  of  production.  At  any  rate 
it  is  a  sheer  absurdity  that  all  things  should  fall  in  value,  and  that 
all  producers  should  be  insufficiently  remunerated.  If  values  re- 
main the  same,  what  becomes  of  prices  is  immaterial,  since  the  re- 
muneration of  producers  depends  upon  how  much  of  consumable 
articles  they  obtain  for  their  goods. 

"Adapted  from  The  Principles  of  Political  Economy,  II,  105-113  (1848). 


THE  BUSINESS  CYCLE  243 

But  it  may  perhaps  be  supposed  that  it  is  not  the  ability  to 
purchase,  but  the  desire  to  possess,  which  falls  short ;  that  those  who 
have  the  means  do  not  make  the  wants,  and  those  who  have  the 
wants  are  without  the  means.  A  portion,  therefore,  of  the  com- 
modities produced  may  be  unable  to  find  a  market. 

This  form  of  the  doctrine  is  more  plausible  and  does  not  involve 
a  contradiction.  There  may  easily  be  a  greater  quantity  of  any 
commodity  than  is  desired  by  those  who  have  the  means  to  pur- 
chase it,  and  it  is  abstractly  conceivable  that  this  might  be  the  case 
with  all  commodities.  The  error  is  in  not  perceiving  that  though 
all  who  have  an  equivalent  to  give  might  be  fully  provided  with 
every  consumable  article  which  they  desire,  the  fact  that  they  go 
on  adding  to  the  production  proves  that  this  is  not  actually  the 
case.  Whoever  brings  additional  commodities  to  the  market  brings 
an  additional  power  to  purchase ;  he  also  brings  an  additional  desire 
to  consume,  since  if  he  had  not  that  desire  he  would  not  have 
troubled  himself  to  produce.  At  most,  it  can  be  argued  that  the 
demand  may  be  for  one  thing  and  the  supply  may  unfortunately 
consist  of  another. 

Driven  to  this  last  resort,  an  opponent  may  perhaps  allege  that 
there  are  persons  who  produce  and  acctunulate  from  mere  habit. 
They  continue  producing  because  the  machine  is  ready  mounted,  and 
save  and  reinvest  their  savings  because  they  have  nothing  on  which 
they  care  to  expend  them.  Such  cases  are  possible;  but  do  not 
affect  our  conclusion.  For,  what  do  these  persons  do  with  their 
savings?  They  invest  them  productively;  that  is,  spend  them  in 
employing  labor.  Now  will  the  laboring  class  also  know  what  to 
do  with  it?  Are  we  to  suppose  that  they  too  have  their  wants  per- 
fectly satisfied,  and  go  on  laboring  from  mere  habit?  Until  the 
working  classes  have  also  reached  the  point  of  satiety,  there  will  be 
no  want  of  demand  for  produce.  Thus,  in  whatever  manner  the 
question  is  looked  at,  the  theory  of  general  over-production  im- 
plies an  absurdity. 

120.     Siin-Spots  and  Crises** 

BY  W.  STANLEY  JEVONS 

I  have  long  felt  convinced  that  a  well-marked  decennial  perio- 
dicity can  be  traced  in  the  activity  of  trade  and  the  recurrence  of 

^•Adapted  from  "The  Periodicity  of  Commercial  Crises  and  Its  Physical 
Explanation,"  in  Investigations  in  Currency  and  Finance,  207,  214-216  (1878). 


244  CURRENT  ECONOMIC  PROBLEMS 

commercial  crises.  Evidence  shows  that  trade  reached  a  maximum 
of  activity  in  or  about  the  years  1701,  171 1,  1721,  1732,  1742,  1753, 
1763,  1772,  1783,  1793,  1805,  1815,  1825,  1837,  1847,  1857,  1866. 
These  years,  whether  marked  by  the  bursting  of  a  commercial  panic 
or  not,  are  corresponding  years,  and  the  intervals  vary  only  from 
nine  to  twelve  years.  There  being  in  all  an  interval  of  one  hundred 
and  sixty-five  years,  broken  into  sixteen  periods,  the  average  length 
of  these  periods  is  about  10.3  years.  But  the  dates  1701  and  171 1 
are  not  well  established  and  the  panic  of  1866  was  probably  precipi- 
tated by  the  fall  of  Overends,  Gurney  &  Co.  Judging  by  the  events 
of  1837,  1847,  and  1857,  we  should  probably  place  the  proper  date 
of  the  collapse  in  1867.  If  we  compare  the  unquestionable  collapse 
of  1721  with  1867,  the  average  interval  is  10.43  years;  if  we  prefer 
to  compare  1721  with  1857,  i^  which  year  there  was  an  undoubted 
collapse,  then  the  mean  interval  becomes  10.46.  As  the  year  1763 
was  also  a  year  of  well-marked  crisis,  it  is  instructive  to  compare 
it  with  1857,  which  gives  the  average  interval  just  10.44  years, 
which  falls  nearly  between  the  previous  results,  and  may  be  accepted 
as  the  most  probable.  Now  it  is  very  curious  to  bring  this  result 
in  connection  with  the  statement  of  Mr.  J.  A.  Brown^^  that  his  in- 
vestigations led  him  to  the  conclusion  that  the  cycle  for  sun-spots 
was  10.45  years.  His  conclusion  agrees  with  that  previously  ob- 
tained by  Dr.  Lamont.  Judging  by  this  close  coincidence  of  results 
according  to  the  theory  of  probabilities,  it  becomes  highly  probable 
that  the  two  periodic  phenomena,  varying  so  nearly  in  the  same 
mean  period,  are  connected  as  cause  and  effect. 

These  periodic  variations  in  industrial  activity  are  frequently 
attributed  to  mental  action.  A  commercial  panic,  it  is  held,  is  the 
destruction  of  belief  and  hope  in  the  minds  of  merchants  and 
bankers.  Though  I  agree,  I  can  see  no  reason  why  the  human  mind, 
in  its  own  spontaneous  action,  should  select  a  period  of  just  10.44 
years  to  vary  in.  Surely  we  must  go  beyond  the  mind  to  its- indus- 
trial environment.  Merchants  and  bankers  are  continually  influenced 
in  their  dealings  by  accounts  of  the  success  of  harvests,  the  compara- 
tive abundance  or  scarcity  of  goods ;  and  when  we  know  that  there 
is  a  cause,  the  variation  of  the  solar  activity,  which  is  just  of  the 
nature  to  affect  the  produce  of  agriculture,  and  which  does  vary  in 
the  same  period,  it  is  almo.st  certain  that  the  two  sets  of  phenomena, 
credit  cycles  and  solar  variations,  are  connected  as  cause  and  effect. 

-Nature,  XVI.  63  (1877). 


THE  BUSINESS  CYCLE  245 

121.     The  Neo-Jevonian  Theory-' 

BY  ALVIN  S.  JOHNSON      * 

We  have  no  lack  of  theories — some  of  them  extremely  ingenious 
— setting  forth  the  causes  and  conditions  of  crises.  Most  of  these 
unfortunately  are  vitiated  by  a  propagandist  purpose.  Just  as  the 
practical  politician  ascribes  depression  to  the  tariff,  so  the  economist 
is  likely  to  find  the  cause  in  social  conditions  of  which  he  disapproves. 
Theorists  who  approve  of  the  existing  order  on  general  grounds  are 
disposed  to  assign  a  separate  cause  to  each  crisis.  So  of  the  outstand- 
ing fact  of  periodicity  of  crises  we  have  hitherto  had  no  satisfactory 
explanation.  Accordingly  we  may  regard  as  an  event  of  great 
practical  and  scientific  importance  a  new  book  on  economic  cycles 
by  Professor  Moore.^* 

The  author  attempts  to  apply  the  newer  mathematics  to  the 
analysis  of  economic  facts.  For  a  generation  or  more  students  of 
meteorology  have  occupied  themselves  with  cyclical  variations  in 
climate ;  and  these  variations,  affecting  as  they  must  the  production 
of  agricultural  staples,  have  an  obvious  bearing  upon  economic  con- 
ditions. Professor  Moore  has  attacked  the  climate  problemi  anew 
and  shows  that  so  far  as  rainfall  is  concerned — the  most  important 
element — the  climate  of. our  middle  western  agricultural  territory  is 
characterized  by  great  cycles  of  approximately  thirty-three  years, 
and  by  lesser  cycles  of  approximately  eight  years.  An  analysis  of 
crop  statistics  shows  that  the  yield  per  acre  of  staple  crops  correlates 
very  closely  with  the  rainfall  cycles  thus  established.  Agricultural 
prices  are  high  in  lean  years  and  low  in  fat  ones ;  nevertheless  the 
price  variations  are  inadequate  to  counterbalance  the  variations  in 
yield.  Accordingly  the  purchasing  power  exerted  by  agriculture 
varies  in  cycles  that  are  identical  with  the  rainfall  cycles.  Thus 
agricultural  prosperity  and  depression  are  already  explained. 

Next,  as  to  the  effect  on  industry.  Professor  Moore  analyzes  the 
statistics  of  pig-iron  production — the  "barometer  of  business" — and 
finds  that  with  due  allowance  for  the  secular  upward  trend  in  produc- 
tion, the  figures  reveal  cycles  corresponding  with  the  rainfall  cycles, 
but  lagging  after  by  an  interval  of  about  two  years.  Finally  a  study 
of  general  prices — the  indicia  of  prosperity  and  depression — brings 
to  light  corresponding  cycles,  with  a  lag,  however,  of  about  four 

^'Adapted  from  "Causes  of  Crises,"  in  The  New  Republic,  II,  17-19. 
Copyright   (1915). 

^'Economic  Cycles:  Their  Law  and  Cause.  Published  by  Macmillan 
(1914). 


246  CURRENT  ECONOMIC  PROBLEMS 

years.  Thus  is  established  the  dependence  of  all  the  complex  phe- 
nomena of  economic  cycles  upon  the  simple  underlying  phenomenon 
of  the  meteorological  cycle. 

122.     Capitalization  and  Crises*" 

BY  FRANK  A.  FETTER 

Capitalization  runs  through  all  industry.  The  value  of  every- 
thing that  lasts  for  more  than  a  moment  is  built  in  part  upon  in- 
come which  is  not  actual,  but  expectative,  whose  amount,  there- 
fore, is  a  matter  of  guesswork,  or  speculation.  Many  unknown 
factors  enter  into  the  estimate  of  future  incomes.  The  universal 
tendency  to  rhythm  in  motion  manifests  itself  in  an  overestimate  or 
underestimate  of  income.  Most  men  follow  a  leader  in  investment 
as  in  other  things.  The  spirit  of  speculation  grows  until  it  becomes 
almost  a  frenzy  and  people  rush  toward  this  or  that  investment, 
throwing  capitalization  in  some  industries  far  out  of  equilibrium 
with  that  in  others. 

The  use  of  credit  enhances  the  rhythm  of  price.  A  large  part  of 
business  is  done  on  margins.  If  the  value  of  a  thing  fully  paid  for 
falls  in  the  hands  of  the  owner,  he  alone  loses;  but,  if  the  value 
of  a  thing  only  partially  paid  for  falls  so  much  that  the  owner  is 
forced  to  default  in  his  payment,  the  loss  may  be  transmitted  along 
the  line  of  credit  to  every  one  in  the  series  of  transactions.  A 
credit  system,  highly  developed,  is  a  house  of  cards  at  a  time  of 
financial  stress.  There  is  an  element  of  credit  in  almost  all  busi- 
ness. Entrepreneurs  enter  into  strenuous  rivalry  to  secure  the 
profits  of  a  rise,  ever  hoping  to  get  out  whole  before  the  crisis 
comes. 

The  fundamental  cause  of  crises  thus  is  seen  to  be  psychological ; 
it  is  the  rhythmic  miscalculation  of  incomes  and  of  capital  value, 
occurring  to  some  degree  throughout  industry.  This  is  given  full 
opportunity  for  action  only  when  certain  favoring  objective  con- 
ditions are  present.  Most  noteworthy  of  these  is  the  dynamic  con- 
dition of  industry.  The  past  century  has  opened  up  new  fields  of 
investment  on  an  unexampled  scale.  New  machinery  and  processes 
have  given  undreamed  of  opportunity  for  enterprise.  Such  factors 
disturb  the  equilibrium  of  prices  both  in  time  and  space,  give  a 
powerful  stimulus  towards  higher  values,  and  stimulate  the  hopes 
of  all  investors.     When  the  balance  between  the  capitalization  of 

"•Adapted   from  Principles  of  Economics,  353-354.     Copyright  by  the 
Century  Co.  (1904)- 


THE  BUSINESS  CYCLE  247 

various  industries  and  between  the  income  of  various  periods  proves 
to  be  false,  the  inevitable  readjustment  causes  suffering  andiloss  to 
many,  but  partiailarly  in  the  inflated  industries.  But,  because  of 
the  mutual  relations  of  men  in  business,  few  even  of  those  who  have 
kept  freest  frora  speculation  can  quite  escape  the  evils. 

123.     The  Lagging  Adjustment  of  Interest^" 

BY  IRVING  FISHER 

Few  persons  realize  how  central  a  role  interest  plays  in  all 
business  phenomena.  Interest  is  the  link  connecting  each  year  with 
the  next.  Every  plan  and  contract  involving  time  must  be  made 
partly  in  terms  of  the  rate  of  interest,  even  though  this  rate  enters 
unperceived.  We  have  several  billions  of  dollars  invested  today  in 
the  life  insurance  business.  The  whole  structure  has  been  calculated 
by  assuming  a  law  of  human  mortality  and  a  rate  of  interest.  A 
change  of  one  point  in  the  rate  of  interest  makes  an  enormous  change 
in  all  these  calculations.  The  value  of  all  lands,  all  capital,  all  securi- 
ties, depends  upon  the  rate  of  interest.  The  importance,  therefore, 
of  having  the  rate  properly  adjusted  cannot  be  too  much  emphasized. 
To  show  the  necessity  of  an  adjustment  to  meet  a  new  situation  let 
us  take  an  example.  If  in  1896  it  had  been  believed  that  Bryan  was 
to  be  elected,  that  his  program  was  to  be  carried  out,  and  that  in 
consequence  there  was  to  be  enacted  a  veritable  "50-cent  dollar,"  it 
would  have  been  necessary  to  increase  the  rate  of  interest  by  an 
amount  equal  to  a  sinking  fund  for  the  50  per  cent  depreciation.  In 
like  manner  it  is  always  necessary  for  self-protection  to  raise  the 
interest  rate  to  guard  against  any  foreseen  depreciation. 

To  offset  such  depreciation  the  business  man  does  not  actually 
have  to  call  it  by  that  name.  Instead  of  considering  gold  as  chang- 
ing in  value,  he  may  consider  commodities  as  changing  in  terms  of 
gold;  and  instead  of  talking  of  depreciation  of  gold,  he  may  speak 
of  rise  of  prices.  The  business  man  who  believes  that  prices  in 
general  will  rise  in  the  next  ten  years  believes  in  effect  that  the  value 
of  gold  will  fall.  He  will  be  likely  to  take  this  fact  into  account  in 
connection  with  every  business  venture  or  investment.  The  result 
will  inevitably  be  a  rise  in  the  rate  of  interest.  If,  for  instance,  he  is 
a  borrower,  rising  prices  will  mean  to  him  rising  profits,  and  he  will 
be  much  more  ready  than  if  prices  were  falling  to  pay  high  interest. 
On  the  other  hand,  to  be  tempted  to  lend  money,  he  will  require 
higher  interest  to  insure  his  receiving  an  equivalent  of  the  purchasing 

'"Adapted  from  "Gold  Depreciation  and  Interest  Rates,"  in  Moody's 
Magazine,  VII,  110-114.    Copyright  (1909). 


248  CURRENT  ECONOMIC  PROBLEMS 

power  loaned.  There  is  thus  provided  a  certain  escape  from  the 
evils  atftending  a  foreknown  change  in  the  value  of  money. 

Unfortunately,  however,  the  great  mass  of  persons  do  not  con- 
sider the  prospect  of  a  change  in  the  general  level  of  prices.  An 
investigation  seeking  to  determine  to  what  extent  a  rise  in  prices  is 
actually  discounted  and  offset  shows :  first,  that  in  general  when 
prices  are  rising,  the  rate  of  interest  is  high  and  therefore  does  to  a 
certain  extent  compensate  for  the  fall  in  the  principal,  but  second, 
it  is  not  usually  high  enough  fully  to  compensate  for  this  deprecia- 
tion.    In  other  words,  it  is  only  partially  adjusted. 

This  lack  of  adjustment  implies  a  transfer  of  the  ownership  qf 
wealth  from  the  creditor  to  the  debtor.  The  investor  who  is  shrewd 
enough  to  foresee  the  rise  in  prices  will  bond  his  business  at  the 
current  rate  of  interest.  Since  this  rate  is  lower  than  his  business 
could  afford  to  pay,  the  enterpriser  wins  at  the  expense  of  the  bond- 
holder. He  will  borrow  more  than  he  otherwise  would  because,  the 
rate  of  interest  is  lower  than  it  should  be.  The  borrowing  class 
today  consists  of  the  enterprisers — precisely  the  men  who  have  the 
greatest  foresight — consequently  it  is  the  borrower,  not  the  lender, 
who  first  foresees  a  rise  or  fall  of  prices.  If  the  lender  foresaw 
equally  he  would  demand  a  higher  rate  of  interest  when  prices  are 
rising.  An  adequate  adjustment  of  interest  would  prevent  this  ex- 
tensive borrowing,  but,  because  of  an  inequality  of  foresight,  a  rise 
of  prices  will  stimulate  loans. 

This  is  the  analysis  of  the  universally,  observed  fact  that  during 
a  period  of  rising  prices  loans  are  unduly  stimulated.  For  a  time 
larger  profits  are  made  simply  because  part  of  the  lender's  share  goes 
to  the  borrower,  and  this  continues  until  the  rate  of  interest  at  last 
becomes  sufficiently  adjusted  to  check  the  loans. 

A  crisis  is  the  cumulation  of  a  period  of  rising  prices.  In  the 
mechanism  of  this  process,  however,  the  main  role  is  played  by  the 
rate  of  interest.  The  series  of  events  is,  I  believe,  in  general  as 
follows :  , . 

First,  a  rise  in  prices  through  any  cause,  such  as  an  increased 
production  of  gold. 

Second,  failure  at  first  of  the  rate  of  interest  to  rise  enough  to 
offset  the  impending  fall  in  the  value  of  money  (rise  in  prices). 

Third,  borrowers  are  quicker  to  grasp  the  situation  than  lenders, 
and  consequently  loans  are  unduly  extended. 

Fourth,  the  increase  of  loans  is  accompanied  by  an  increase  of 
bank  deposits. 


THE  BUSINESS  CYCLE  249 

Fifth,  since  bank  deposits  act  as  a  substitute  for  money,  an  in- 
crease of  bank  deposits  tends  further  to  increase  prices. 

In  other  words,  as  a  result  of  this  chain  of  causes,  beginning  with 
a  rise  in  prices,  the  prices  will  rise  still  further.  There  is  thus  set 
up  a  vicious  circle,  which  will  continue  just  as  long  as  the  rate  of 
interest  fails  to  make  a  proper  adjustment  to  put  on  the  brakes  and 
prevent  the  over-borrowing.  It  is  odd  that  when  the  crisis  comes  the 
blame  is  put  on  the  high  rate  of  interest,  in  utter  disregard  of  the 
fact  that  if  the  rate  of  interest  had  been  higher  at  first,  the  crisis 
would  have  been  averted. 

H.     CREDIT  AND  CRISES 
124*     Inelasticity  of  Credit  under  the  National  Banking  System 

BY   HAROLD  G.  MOULTON 

The  financial  crisis  is  marked  by  an  enormous  demand  upon  the 
banks  for  funds.  Many  business  men,  finding  that  debts  due  them 
are  not  being  paid  at  maturity,  become,  in  consequence,  unable  to 
meet  their  own  maturing  obligations.  The  result  is  a  rush  to  the 
banks  for  loans  with  which  to  tide  themselves  over  the  crisis.  Many 
other  business  men,  who  merely  fear  that  their  debtors  may  not  be 
able  to  pay  promptly,  also  rush  to  the  banks  for  an  accommodation 
in  anticipation  of  trouble  to  come.  It  is  usually  feared  that  a  little 
later  locns  may  be  procured  only  at  a  very  high  rate,  if  at  all ;  and 
that,  in  any  event,  an  immediate  loan  insures  financial  safety  and 
peace  of  mind  to  the  worried  business  man. 

Under  the  recently  superseded  national  banking  system,  sound 
banking  practice,  as  well  as  the  law,  required  national  banks  to  keep 
a  reserve  in  cash  against  their  obligations  which  were  payable  on 
demand.  For  instance,  in  the  big  financial  centers,  a  reserve  of  25 
per  cent  was  required.  That  is,  if  the  bank  had  made  loans  to  the 
extent  of  $1,000,000  and  had  given  depositors  checking  (deposit) 
accounts  against  which  they  might  draw  as  desired,  it  would  have  to 
hold  in  cash  a  reserve  of  at  least  $250,000.  To  illustrate  the  situation 
that  develops  in  time  of  crisis,  let  us  assume  the  above  bank  to  have 
a  reserve  of  $275,000,  or  27.5  per  cent,  and  that  at  the  time  of  crisis 
there  arises  a  demand  for  $100,000  of  additional  loans  to  business. 
This  would  make  the  deposit  accounts  equal  to  substantially  $1,100,- 
000,  without  causing  any  change  in  the  reserve ;  and  the  result  would 
be  a  reduction  in  percentage  of  reserves  to  deposits  from  27.5  to  25 


250  CURRENT  ECONOMIC  PROBLEMS 

per  cent,  the  legal  minimum.  The  situation  is  usually  rendered  still 
more  acute  by  reason  of  the  fact  that  many  depositors,  fearful  of  the 
safety  of  the  banks,  withdraw  and  hoard  cash.  If  we  assume 
$50,000  to  be  withdrawn  in  this  way,  the  reserve  is  reduced  to 
$225,000  which,  of  course,  further  reduces  the  ratio  of  reserve  to 
deposits,  specifically  to  about  21.5  per  cent.  This  double  strain  upon 
the  banks  thus  quickly  carries  them  to  a  point  where  inability  to 
maintain  specie  payments  and  consequently  insolvency  is  imminent. 
Thus  far  we  have  spoken  of  a  demand  on  the  banks  for  funds  or 
loans,  using  these  terms  in  a  general  sense.  It  is  now  necessary  to 
clarify  the  situation  by  stating  that  the  demand  of  the  business  world 
is  partly  for  credit  in  the  form  of  checking  accounts,  and  partly  for 
actual  money  in  the  form  of  bank  notes.  The  latter  appears  to  the 
average  person  as  the  all-important,  if  not  the  sole,  function.  S<;ar- 
city  of  money  is  what  the  man  of  small  means  whose  transactions  are 
generally  of  a  retail  nature  sees.  This  is  of  course  a  scarcity  of 
available  funds  due  to  the  hoarding  that  has  taken  place;  but  a 
scarcity  of  credit,  of  the  ability  to  procure  checking  accounts  which 
can  be  drawn  against  in  making  payments,  is  of  far  greater  moment. 
The  total  demand  for  deposit  or  check  currency  is  many  times  as 
great  as  the  demand  for  money  or  bank-note  currency. 

Under  the  national  banking  system  it  was  practically  impossible 
for  the  banks  to  expand  materially  either  their  note  issues  or  their 
deposit  currency  in  time  of  crisis.  To  issue  notes  a  bank  had  first  to 
expend  cash  to  a  greater  amount  in  the  purchase  of  government 
bonds  to  secure  the  value  of  the  notes  to  be  issued.  Moreover,  it  was 
usually  extremely  difficult  to  secure  the  bonds  required.  The  note 
issue,  accordingly,  was  very  inelastic. 

While  deposit  currency  could  be  expanded  as  long  as  the  reserves 
were  plentiful,  the  necessary  expansion  incident  to  the  crisis  could 
not  be  met.  Replenishment  of  reserves  is  absolutely  essential  to  an 
extensive  expansion  of  deposit  currency.  But  the  banks  were  unable 
to  increase  their  reserves.  Normally  a  bank  might  be  expected  to 
do  in  time  of  stress  what  an  individual  does,  namely,  sell  or  pledge 
as  security  for  a  loan  more  of  its  available  assets  or  property.  But, 
except  in  a  limited  way  through  the  agency  of  clearing-house  asso- 
ciations, there  was  no  means  by  which  the  banks  could  convert  their 
assets  into  cash.  Our  national  banking  system  was  decentralized 
and  non-co-operative;  and  in  time  of  trouble  each  bank  endeavored 
to  save  itself  regardless  of  others,  with  the  devil  taking  the  hindmost. 
There  was  no  central  agency  or  institution  to  which  banks  that  were 
hardpressed  could  turn  for  accommodation.  Credit  or  deposit  cur- 
rency was  therefore  almost  as  inelastic  as  bank-note  currency. 


THE  BUSINESS  CYCLE  251 

125.     How  a  Panic  Was  Averted  in  19 14" 

It  is  possible  that  there  have  never  been  two  months  in  the  history 
of  the  United  States  since  the  Civil  War  when  so  many  and  such 
far-reaching  financial  and  commercial  problems  were  presented  as 
have  been  offered  during  August  and  September  of  this  year.  Be- 
ginning with  the  sudden  outbreak  of  the  war,  drastic  and  unpre- 
cedented fluctuations  in  securities,  cotton,  chemicals,  and  other 
commodities  were  witnessed.  They  were  accompanied  by  a  suspen- 
sion of  practically  all  communication  with  outside  countries,  due  to 
the  unwillingness  of  shipowners  to  continue  the  operation  of  their 
vessels  from  fear  of  capture.  The  total  annihilation  of  export  trade 
for  the  time  being,  as  well  as  the  partial  destruction  of  import  busi- 
ness, produced  serious  financial  and  labor  difficulties  in  the  United 
States.  At  the  basis  of  the  whole  situation  lies  the  financial  problem 
that  was  forced  to  the  front  by  the  declaration  of  war. 

Hardly  had  the  actual  outbreak  of  the  war  become  known  when 
the  closing  of  the  European  exchanges  gave  the  signal  for  similar 
action  in  the  United  States.  On  August  i,  the  New  York  Stock 
Exchange  closed  its  doors,  and  this  example  was  shortly  followed  by 
the  cotton  and  coffee  exchanges,  and  by  the  Consolidated  Stock  Ex- 
change. The  immediate  reason  for  the  closing  of  the  New  York 
Stock  Exchange  was  twofold:  (i)  Europeans,  foreseeing  a  tre- 
mendous draft  on  their  resources,  hastened  to  sell  investment  securi- 
ties in  the  only  great  market  untouched  by  war.  To  this  end 
European  holders  of  American  stocks  and  bonds  cabled  their  bankers 
in  New  York  to  dispose  of  securities  at  practically  any  price.  This 
process  was  in  operation  during  the  days  before  the  closing  of  the 
Exchange  and  had  already  caused  heavy  shipments  of  gold  to  Europe. 
Had  it  been  allowed  to  continue,  it  would  have,  almost  certainly, 
deprived  the  United  States  of  a  very  large  proportion  of  its  gold 
stock;  (2)  Stock  Exchange  operators  who  had  obtained  bank  loans 
protected  by  collateral  security  saw  that  the  reduction  of  prices  on 
the  Exchange  which  would  necessarily  ensue  would  effectually  "wipe 
them  out,"  while  the  banks  which  were  "carrying"  these  persons 
understood  that,  if  obliged  to  "call"  the  loans  thus  made,  they  would 
still  further  aggravate  the  pressure  of  selling  orders  and  would 
bring  about  widespread  ruin  in  the  financial  world. 

The  confessed  closing  of  the  exchanges,  because  of  the  danger 
of  loss  of  gold  and  of  depreciation  of  prices,  naturally  tended  to 
arouse  serious  alarm  in  many  minds,  and  withdrawals  of  cash  both 
from  the  banks  and  from  the  Treasury  began  to  be  heavy.    Almost 

** Adapted  from  "Washington  Notes,"  in  the  Journal  of  Political  Economy, 

XXII,  791-793  (19x4). 


252  CURRENT  ECONOMIC  PROBLEMS 

simultaneous  with  this  condition  was  the  declaration  of  a  so-called 
"moratorium"  by  most  of  the  principal  countries  of  Europe.    This 
prevented  Americans   who  had   maturing   European   claims    from 
collecting  the  amounts  due  them  until  a  later  date  than  they  had 
expected.    Hence  such  persons  were  compelled  to  draw  more  heavily 
upon  their  home  bank  accounts  and  so  far  as  possible  finance  them- 
selves through  fresh  loans  at  the  banks.     Fearing  the  heavy  draft 
on  their  resources  that  was  thus  threatened,  the  New  York  banks 
almost  immediately  had  recourse  to  the  "national  currency  associa- 
tion" which  had  been  organized  after  the  adoption  of  the  Aldrich- 
Vreeland  Act.^^  Other  banks  promptly  took  like  action.   Applications 
were  at  once  made  to  the  government  for  the  issue  of  emergency 
currency,  and  it  was  resolved  also  to  employ  an  issue  of  clearing- 
house certificates.     Both  of  these  methods  were  sanctioned  by  the 
government  on  August  2,  and  on  the  following  day  the  work  of 
issuing  the  certificates  and  notes  was  actively  begun.    It  was  found, 
however,    that    the    Aldrich-Vreeland    Act    placed    some    serious 
obstacles  in  the  way  of  an  easy  issue  of  currency.    In  consequence  a 
bill  for  the  relief  of  this  state  of  things  was  introduced  in  Congress 
and  was  signed  by  the  President  on  August  4.    This  amendatory  act 
reduced  the  tax  on  Aldrich-Vreeland  notes  for  the  first  three  months 
of  their  circulation  to  3  per  cent  and  raised  the  limit  of  issues  to  125 
per  cent  of  capital  and  surplus.    While  no  public  announcement  was 
made  of  the  issue  of  clearing-house  certificates,  it  is  known  that  in 
both  New  York  and  elsewhere  an  enormous  amount  of  such  certifi- 
cates were  issued.     The  emergency  currency  taken  out  under  the" 
amended  legislation  already  referred  to  expanded  so  rapidly  that  by 
the  opening  of  September  more  than  $250,000,000  of  it  had  been 
issued.    The  emergency  currency  was  freely  accepted  by  individuals, 
and  banks  in  New  York  as  well  as  elsewhere  adopted  the  policy  of 
paying  it  out  whenever  possible  while  holding  gold.     Thus  the 
financial  stringency  was  narrowly  averted. 

**The  Aldrich-Vreeland  Act  of  May  30,  1908,  attempted  to  create  an 
elastic  currency  for  use  in  emergencies.  It  provided  for  the  formation  of 
"national  currency  associations"  by  ten  or  more  national  banks  having  an 
aggregate  capital  of  $5,000,000.  Upon  application  of  one  of  these  associa- 
tions, the  Comptroller  of  the  Currency,  with  the  approval  of  the  Secretary 
of  the  Treasury,  was  permitted  to  issue  circulating  notes  not  to  exceed  75 
per  cent  of  the  commercial  paper  or  90  per  cent  of  the  state,  county,  and 
municipal  bonds  which  were  required  to  be  deposited  with  the  Treasury  as 
security.  The  total  of  additional  notes  for  the  entire  country  was  not  to 
exceed  $500,000,000.  A  tax  of  5  per  cent  per  annum  for  the  first  month 
was  imposed  upon  the  issue  of  these  notes.  An  additional  tax  of  i  per  cent 
per  annum  was  imposed  for  each  month  until  a  tax'  of  10  per  cent  per 
annum  was  reached. — Editor. 


THE  BUSINESS  CYCLE  253 

126.    Provisions  for  Elasticity  in  the  New  Currency  Acf' 

BY  L.  M.  JACOBS,  JR. 

The  new  banking  system  of  the  United  States,  as  provided  in  the 
Act  of  December  23,  1913,  has  as  its  central  feature  the  establish- 
ment of  twelve  Federal  reserve  banks,^*  under  the  control  of  a 
Federal  Reserve  Board  appointed  by  the  President.  The  United 
States  is  to  be  divided  into  twelve  districts,  in  each  of  which  a  city 
is  to  be  designated  as  a  Federal  reserve  city.  National  banks  are 
required  and  state  banks,  imder  certain  conditions,  are  eligible,  to 
become  members  of  regional  reserve  bank  associations. 

The  Federal  Reserve  Board  is  to  be  the  dominant  factor  in  the 
new  banking  system.  It  consists  of  seven  members,  the  Secretary 
of  the  Treasury,  the  Comptroller  of  the  Currency,  and  five  persons 
appointed  by  the  President,  with  the  approval  of  the  Senate.  Two 
of  the  five  are  to  be  experienced  bankers.  The  regular  term  of  these 
members  is  ten  years.  This  Board  is  to  have,  within  the  law,  general 
supervision  of  the  banking  system.  The  functions  of  the  Federal 
Advisory  Council,  composed  of  representatives  from  the  Federal 
districts,  is  largely  advisory. 

Each  Federal  reserve  bank  is  to  have  nine  directors,  three  selected 
by  the  Federal  Reserve  Board,  and  six  elected  by  the  member  banks. 
They  are  authorized  to  receive  from  member  banks  deposits  of  cur- 
rency or  cheques  and  drafts  upon  solvent  member  banks  payable  on 
presentation. 

Upon  the  indorsement  of  any  of  the  member  banks  any  Federal 
reserve  bank  may  discount  notes,  drafts,  and  bills  of  exchange  aris- 
ing out  of  actual  commercial  transactions.  The  Federal  Reserve 
Board  is  to  have  the  right  to  determine  the  character  of  the  paper 
thus  eligible  for  discount.  Paper  to  be  admitted  to  discount  must 
have  a  maturity  of  not  more  than  90  days,  except  that  paper  growing 
out  of  agricultural  transactions  with  a  maturity  not  exceeding  six 
months  may  be  discounted  in  limited  amounts.  No  limitation  is 
placed  upon  the  amount  of  rediscounts  a  Federal  reserve  bank  may 
handle  for  a  member  bank,  but  the  rediscounts  are  to  be  subject  to 
such  restrictions  as  may  be  imposed  by  the  Federal  Reserve  Board. 

Each  Federal  reserve  bank  is  authorized  to  establish  from  time 
to  time,  subject  to  the  review  of  the  Federal  Reserve  Board,  the 

'"Adapted  from  "The  Federal  Reserve  Law  of  the  United  States  of 
America,"  in  Journal  of  the  Institute  of  Bankers,  XXXV,  250-259  (1914)- 

**The  act  as  passed  provided  for  a  minimum  of  eight  and  a  maximum 
of  twelve  regional  reserve  banks.  The  organization  of  the  system  has 
proceeded  on  the  basis  of  twelve. 


254  CURRENT  ECONOMIC  PROBLEMS 

rate  of  discount  to  be  charged  for  each  class  of  paper,  which  shall  be 
fixed  with  a  view  to  accommodating  commerce  and  business. 

The  law  provides  that  every  Federal  reserve  bank  shall  maintain 
reserve  in  gold  or  lawful  money  of  not  less  than  35  per  cent  against 
its  deposits,  and  reser\'es  in  gold  of  not  less  than  40  per  cent  against 
its  Federal  reserve  notes  in  actual  circulation.  The  Federal  Reserve 
Board,  however,  is  empowered  to  suspend,  for  a  period  not  exceeding 
thirty  days,  any  reserve  requirement  in  the  act.  It  can  also  renew 
such  suspensions  for  periods  not  exceeding  fifteen  days  each.  How- 
ever, a  graduated  tax  is  to  be  established  upon  the  amounts  by  which 
the  reserve  requirements  may  be  permitted  to  fall  below  the  specified 
level.  When  the  reserve  falls  between  40  and  32^/2  per  cent,  the  tax 
is  not  to  be  more  than  i  per  cent  upon  such  deficiency ;  if  the  reserve 
falls  below  the  latter  figure,  the  tax  is  to  be  not  less  than  i  ^  per  cent 
upon  each  2^  per  cent  or  fraction  below  32^  per  cent.  Banks  in 
central  reserve  cities  are  required  to  maintain  a  reserve  of  18  per 
cent  of  their  demand  deposits  and  5  per  cent  of  their  time  deposits. 
Banks  in  cities  of  the  second  class  are  required  to  keep  15  per  cent 
of  demand  deposits  and  5  per  cent  of  time  deposits.  Country  banks 
are  required  to  maintain  15  per  cent  reserve  against  all  deposits. 

The  act  authorizes  the  issuance  of  Federal  reserve  notes  at  the 
discretion  of  the  Federal  Reserve  Board  for  the  sole  purpose  of 
making  advances  to  the  Federal  reserve  banks.  These  notes  are  to 
be  obligations  of  the  United  States  and  to  be  receivable  by  all  national 
and  member  banks  and  for  all  taxes.  They  are  to  be  redeemed  in 
gold  on  demand  at  the  Treasury  Department  or  in  gold  or  lawful 
money  at  any  Federal  reserve  bank.  Any  Federal  reserve  bank  may 
make  application  for  such  amount  of  Federal  reserve  notes  as  it  may 
require,  the  application  to  be  accompanied  with  a  tender  of  collateral 
equal  to  the  amount  of  notes  applied  for.  This  collateral  is  to  be 
comprised  of  notes  and  bills  acceptable  for  rediscount.  The  Federal 
Reserve  Board  may  at  any  time  call  upon  the  Federal  reserve  bank 
for  additional  security  to  protect  the  notes  issued  to  it. 

Each  Federal  reserve  bank  is  to  maintain  reserves  in  gold  of  not 
less  than  40  per  cent  against  its  Federal  reserve  notes  in  actual  circu- 
lation. Not  less  than  5  per  cent  of  the  gold  reserve  held  by  a  Federal 
reserve  bank  to  protect  the  notes  outstanding  must  be  deposited  with 
the  Treasurer  of  the  United  States,  and  further  amounts  may  be 
called  for. 

The  Federal  Reserve  Board  is  given  the  right  to  accept  or  reject 
in  whole  or  in  part  the  application  of  any  Federal  reserve  bank  for 
Federal  reserve  notes,  but  to  the  extent  that  such  application  may  be 
granted  the  Federal  Reserve  Board  will  supply  Federal  reserve  notes 


TEE  BUSINESS  CYCLE  255 

to  the  bank  so  applying.  The  bank  will  be  charged  the  amount  of 
the  notes  and  will  pay  such  rates  of  interest  as  may  be  established 
by  the  P'ederal  Reserve  Board. 

When  Federal  reserve  notes  are  issued  to  a  Federal  reserve  bank 
they  will  have  printed  on  their  face  a  distinguishing  number  by  which 
Federal  reserve  banks  will  be  known,  and  it  is  made  unlawful, 
subject  to  a  penalty  of  10  per  cent  of  the  amount,  for  any  Federal 
reserve  bank  to  pay  out  the  notes  of  any  other  Federal  reserve  bank. 
Notes  of  other  Federal  reserve  banks  received  by  a  Federal  reserve 
bank  are  to  be  promptly  forwarded  for  credit  or  redemption  to  the 
issuing  bank. 

127.     Emergency  Elasticity  of  Credit 

BY  HAROLD  G.  MOUIvTON 

Emergency  elasticity  of  credit  and  loans  will  be  secured  under 
the  currency  system  through  what  is  known  as  rediscounting  com- 
mercial paper. 

Suppose  the  First  National  Bank  of  Joliet  should,  when  the 
country  is  face  to  face  with  a  crisis,  find  itself  confronted  with  a 
heavy  demand  for  commercial  loans.  This  means  that  a  large  number 
of  business  concerns  wish  to  borrow  on  their  promissory  notes,  and 
receive  a  deposit  account  against  which  they  can  draw  checks  to 
meet  current  payments.  It  will  be  remembered  that  a  bank  must 
keep  a  certain  percentage  of  cash  reserves  to  deposits.  Suppose  now 
the  cash  of  this  bank  is  at  a  minimum,  and  that,  if  it  makes  further 
loans  on  commercial  paper,  the  reserves  will  fall  below  the  legal 
requirement.  Under  the  old  system  the  bank  would  have  had  to 
refuse  the  loans  to  the  detriment  of  legitimate  business  enterprise. 
But  under  the  new  law  the  Joliet  bank  is  enabled  to  increase  its 
reserves,  and  thereby  enlarge  its  loaning  capacity  by  rediscounting 
some  of  the  promissory  notes  in  its  po.ss€ssion  with  the  Federal 
Reserve  Bank  in  Chicago.  Let  us  make  this  matter  of  rediscounting 
clear. 

When  John  Jones  needs  money  he  may  take  a  note  for  $1,000 
that  he  holds  against  William  Wilson  to  his  bank  in  Joliet  and  sell 
it  to  the  bank  for  cash.  The  bank  will  give  him  $1,000  minus  interest 
for  the  time  the  note  has  yet  to  run.  What  the  Joliet  bank  does  for 
John  Jones  is  precisely  what  the  Federal  Reserve  Bank  in  Chicago 
will  do  for  the  First  National  Bank  of  Joliet.  When  this  bank  needs 
cash  it  can  take  this  note  which  it  has  discounted  and  have  it  dis- 
counted by  the  Federal  Reserve  Bank.  The  Joliet  bank  will  get 
$1,000  less  the  interest  for  the  short  time  the  note  still  has  to  run. 


256  CURRENT  ECONOMIC  PROBLEMS 

This  second  discount  is  what  is  known  as  a  rediscount.  The  Federal 
Reserve  Banks  are,  therefore,  bankers'  banks,  and  they  do  for  the 
individual  member  banks  precisely  what  the  individual  banks  do  for 
their  customers  generally.  This  ability  to  convert  paper  into  cash 
and  thereby  increase  its  reserve  enables  the  Joliet  bank  to  extend 
loans  to  its  customers  even  under  severe  financial  pressure. 

Suppose  that  a  bank  in  a  rural  community  in  the  Chicago  district 
finds,  in  the  face  of  an  emergency,  that  there  is  a  heavy  demand  for 
loans  in  the  form  of  bank  notes.  How  can  the  increased  quantity 
of  notes  be  obtained?  Under  the  new  law  elasticity  of  note  issue  is 
gained  by  permitting  the  issue  of  notes  secured  by  commercial  paper 
or  bank  assets.  The  country  bank  desiring  to  issue  more  notes  sends 
some  of  the  promissory  notes  of  customers  to  the  Federal  Reserve 
Bank  in  Chicago  for  rediscount.  The  latter  may  upon  this  paper  as 
security  have  printed  new  bank  notes  and  send  them  to  the  country 
bank.  This  gives  an  elastic  bank-note  currency  because  the  demand 
for  more  money  itself  brings  into  existence  the  commercial  paper 
that  is  to  be  the  security  for  the  new  notes.  A  farmer,  for  example, 
wants  money  with  which  to  pay  his  laborers.  So  he  gives  his  banker 
a  promissory  note,  which  is  secured  by  the  crops  soon  to  be  marketed. 
His  banker  rediscounts  the  promissory  note  and  turns  the  necessary 
bank  notes  over  to  the  farmer.  But  when  the  need  is  passed  this 
currency  is  contracted.  The  farmer  sells  his  crops  and  pays  his 
promissory  note  at  the  bank.  The  bank  now  pays  these  notes  over 
to  the  Federal  Reserve  Bank  in  Chicago  to  meet  the  obligation  which 
had  resulted  from  the  rediscount.  Bank  notes  equal  in  quantity  to 
the  amount  issued  have  now  come  back  to  the  place  of  issue.  The 
payment  of  the  obligation  which  brought  them  forth  has  automatic- 
ally retired  them. 

By  these  means  panics  can  be  substantially  checked  if  not  pre- 
vented altogether.  In  the  face  of  a  heavy  pressure  of  loans  at  a 
time  of  crisis,  any  bank  can  avail  itself  of  the  process  of  rediscount- 
ing.  This  enlarges  the  loaning  power  of  the  banks,  makes  it  possible 
for  legitimate  business  concerns  to  secure  bank  accommodations 
when  needed,  and  thereby  prevents  failures.  A  business  which  is 
unsound  or  mismanaged  is  not  entitled  to  and  cannot  obtain  loans 
from  a  bank.  It  deserves  to  fail,  and  its  early  failure  will  be  dis- 
tinctly beneficial.  But  the  business  concern  which  is  fundamentally 
sound  and  well  managed  ought  to  be  able  to  secure  banking  accom- 
modations. The  new  currency  law  permits  this;  and  at  the  same 
time  the  ability  of  the  banks  to  provide  more  currency  and  to  expand 
loans  enables  banks  to  meet  all  obligations,  forestall  runs,  and  escape 
failures. 


THE  BUSINESS  CYCLE  257 

128.     Emergency  Elasticity  of  Note  Issue''' 

BY  FRED  M.  TAYLOR 

From  the  beginnings  of  agitation  for  currency  reform  the  advo- 
cates of  elasticity  have  recognized  more  or  less  clearly  two  kinds: 
(i)  that  which  we  may  call  seasonal  or  ordinary  elasticity,  and  (2) 
that  which  we  may  call  emergency  elasticity.  By  the  latter  is  meant 
the  power  of  a  note  issue  to  adjust  its  volume  to  those  extraordinary 
changes  in  need  which  connect  themselves  with  the  typical  banking 
panic. 

Passing  over  the  question  of  the  adequacy  of  the  new  note  issue 
in  respect  to  seasonal  or  ordinary  elasticity,  let  us  consider  its 
adequacy  in  respect  to  emergency  elasticity.  Broadly  speaking,  it  is 
certain  that  at  this  point  the  new  law  will  get  a  fairly  favorable 
verdict.  The  banking  panic,  when  fully  developed,  gives  rise  to 
three-difficulties  and  to  three  needs:  (i)  funds  to  relieve  the  ante- 
cedent stringency  which  threatens  a  complete  collapse  of  the  credit 
structure;  (2)  a  circulating  medium  for  ordinary  financial  trade 
when  a  general  suspension  of  payments  by  the  banks  has  brought  on 
a  money  famine;  and  (3)  a  prompt  and  thoroughgoing  contraction 
of  the  circulation  in  the  depression  which  follows  the  panic. 

There  can  be  doubt  that  under  the  new  law  the  availability  of  an 
issue  sufficient  in  volume  instantly  to  relieve  the  antecedent  strin- 
gency, and  so  to  put  a  stop  to  the  panic  before  it  has  developed  to 
serious  proportions,  is  assured.  In  fact  it  is  not  at  all  improbable 
that  the  new  reserve  banks  will  be  able  to  check  the  development  of 
such  a  panic  at  the  very  outset  without  increasing  at  all  their  note 
issues.  But,  if  this  does  not  prove  true,  there  seems  no  doubt  that 
the  new  system  will  insure  the  forthcoming  of  such  currency  both  of 
a  quality  and  in  a  quantity  which  will  be  fully  adequate  for  the  task 
put  upon  it.  (i)  The  notes  to  be  issued,  being  obligations  of  the 
Federal  Treasury,  will  be  as  acceptable  as  gold  even  on  the  eve  of  a 
panic.  (2)  There  is  no  limit  to  the  absolute  amount  of  these  notes. 
(3)  The  practical  limit  set  by  the  requirement  that  discounted  paper 
shall  be  furnished  as  the  basis  for  their  issue  is  of  no  real  signifi- 
cance, since  such  paper  will  undoubtedly  be  vastly  greater  in  volume 
than  any  need  which  could  arise. 

Let  us  pass  to  the  second  need  which  is  to  be  met,  that  of  an  ordi- 
nary circulating  medium  for  trade  when  banks  have  by  common 
consent  suspended  payment.  In  the  first  place,  if  we  are  right  in 
supposing  that  the  new  law  will  prevent  any  panic  from  reaching 

"Adapted  from  "The  Elasticity  of  Note  Issue  under  the  New  Currency 
Law,"  in  the  Journal  of  Political  Economy,  XXII,  454,  460^-463  (1914). 


258  .         CURRENT  ECONOMIC  PROBLEMS     . 

such  a  degree  of  intensity,  it  is  obvious  that  we  shall  not  have  occa- 
sion to  meet  this  particular  difficulty.  If,  however,  this  does  not 
turn  out  to  be  correct,  if  panics  can  still  go  so  far  as  to  suspend 
payments,  as  to  hold  on  to  every  form  of  reasonably  solid  money, 
and  as  to  try  to  satisfy  the  public  with  substitutes,  our  verdict  for 
the  new  currency  will  be  less  favorable.  The  new  law  does  little 
or  nothing  to  relieve  such  a  situation.  Broadly  speaking,  the  new 
money  will  be  altogether  too  good  to  meet  this  particular  need.  Banks 
that  had  reached  a  stage  of  panic  sufficiently  intense  to  cause  them 
to  suspend  payment  would  be  sure  to  hoard  money  as  good  as  these 
notes  are  bound  to  be.  The  new  issue  would  immediately  pass  into 
hoards  and,  therefore,  would  bring  little  if  any  relief  to  the  currency 
famine  which  had  developed.  In  fact  it  is  almost  impossible  to  con- 
ceive any  form  of  note  fitted  to  this  particular  task  except  one  so  bad 
that  there  was  no  danger  of  its  being  hoarded.  The  only  proper  way 
to  meet  this  particular  need  is  to  make  sure  that  it  does  not  rise  at  all. 
We  come  finally  to  the  third  need  which  is  to  be  met,  that  of  a 
prompt  and  general  contraction  of  the  circulation  when  the  panic  has 
passed  and  the  inevitable  business  depression  consequent  upon  such 
a  panic  has  set  in.  Here  again,  though  not  in  the  same  degree  as  in 
the  last  case,  if  the  new  law  proves  as  successful  as  anticipated,  the 
need  in  question  will  be  little  experienced.  We  shall  usually  escape 
the  extreme  business  inflation  of  the  ante-panic  period;  the  panic 
itself  will  be  much  abated,  if  not  completely  eliminated;  and,  in 
consequence,  the  trade  reaction  which  naturally  follows  a  panic  will 
be  much  diminished  in  intensity.  Yet,  it  can  hardly  be  doubted  that, 
after  even  an  incipient  panic,  there  will  be  some  reaction,  and  conse- 
quently a  more  or  less  plethoric  condition  of  the  currency  will  follow. 
Will  the  new  issue  have  sufficient  contractility  to  meet  the  need? 
In  general  the  conditions  attached  to  the  new  issue  are  not  favorable 
to  contractility.  They  do  not  provide  for  either  the  prompt  driving 
home  or  the  prompt  drawing  home  of  the  notes  when  the  necessity 
for  their  issue  is  past.  Outsiders  lack  adequate  motives  for  sending 
these  notes  home;  issuers  lack  adequate  motives  for  calling  them 
home.  The  case  for  emergency  contractility  is,  however,  strength- 
ened by  one  or  two  peculiar  conditions.  First,  it  is  probable  that 
the  homing  power  of  the  note  will  prove  greater  at  such  a  time  than 
in  an  ordinary  year,  for,  at  such  a  time,  outside  banks  will  not  be 
able  to  find  investments  for  their  funds,  since  speculative  trading 
will  disappear  and  business  generally  will  be  at  a  very  low  ebb. 
Again,  it  seems  that  the  issuing  bank  will,  in  this  case,  have  more 
than  the  usual  motive  for  bringing  about  a  contraction  of  the  circula- 
tion.   In  ordinary  times  a  bank  will  gain  more  by  using  the  funds  in 


TEE  BUSINESS  CYCLE  259 

its  possession  to  make  loans  rather  than  to  retire  notes,  assuming 
that  the  interest  charge  made  by  the  Federal  Reserve  Board  is  not 
placed  excessively  high.  Consequently  banks  will  not  be  eager  to 
retire  their  own  notes.  But,  in  the  depression  that  follows  a  panic, 
no  reserve  bank  will  have  opportunity  for  keeping  all  its  funds  busy ; 
and  since  in  this  case  the  interest  charge,  however  small,  will  be  a 
dead  loss,  the  bank  will  have  adequate  motive  for  effecting,  as 
promptly  as  possible,  an  adequate  contraction  of  its  note  liabilities. 
This  motive  would  be  still  further  strengthened  if  the  glut  proved 
sufficient  to  cause  a  decided  drain  of  gold,  since,  in  that  case,  the 
reserve  banks  will  find  difficulty  in  maintaining  the  required  40  per 
cent  reserve.  On  the  whole,  then,  we  seem  warranted  in  affirming 
that,  as  respects  emergency  elasticity,  the  new  notes  will  give  no 
serious  disappointment. 

I.     CONTROL    OF   THE   INDUSTRIAL   CYCLE 
129.     Panic  Rules  for  Banks^® 

BY  WALTER  BAGEHOT 

In  time  of  panic,  advances,  if  they  are  to  be  made  at  all,  should 
be  made  so  as,  if  possible,  to  obtain  the  object  for  which  they  are 
made.  The  end  is  to  stay  the  panic;  and  the  advances  should,  if 
possible,  stay  the  panic.    And  for  that  purpose  there  are  two  rules : 

First.  That  these  loans  should  be  made  only  at  a  very  high  rate 
of  interest.  This  will  operate  as  a  heavy  fine  on  unreasonable  timid- 
ity, and  will  prevent  the  greater  number  of  applications  by  persons 
who  do  not  require  it.  The  rate  should  be  raised  early  in  the  panic, 
so  that  the  fine  may  be  paid  early ;  that  no  one  may  borrow  out  of 
idle  precaution  without  paying  well  for  it ;  that  the  banking  reserve 
may  be  protected  as  far  as  possible. 

Secondly.  That  at  this  rate  these  advances  should  be  made  on 
all  good  banking  securities,  and  as  largely  as  the  public  asks  for  them. 
The  reason  is  plain.  The  object  is  to  stay  alarm,  and  nothing,  there- 
fore, should  be  done  to  cause  alarm.  But  the  way  to  cause  alarm  is 
to  refuse  someone  who  has  good  security  to  offer.  The  news  of  this 
will  spread  in  an  instant  through  all  the  money  markets  at  a  moment 
of  terror ;  no  one  can  say  exactly  who  carries  it,  but  in  half  an  hour 
it  will  be  carried  on  all  sides,  and  will  intensify  the  terror  every- 
where. No  advances  indeed  need  be  made  by  which  the  banks  will 
ultimately  lose.  The  amount  of  bad  business  in  commercial  coun- 
tries is  an  infinitesimally  small  fraction  of  the  whole  business.    That 

"Adapted  from  Lombard  Street,  10th  ed.,  199-200   (1873).  • 


26o  CURRENT  ECONOMIC  PROBLEMS 

in  a  panic  the  banks  should  refuse  bad  bills  or  bad  securities  will  not 
make  the  panic  worse ;  the  "unsound"  people  are  a  feeble  minority, 
and  they  are  afraid  even  to  look  frightened  for  fear  the  unsoundness 
will  be  detected.  The  great  majority,  the  majority  to  be  protected, 
are  the  "sound"  people,  the  people  who  have  good  security  to  offer. 
If  it  is  known  that  the  banks  are  advancing  on  what  in  ordinary  times 
is  reckoned  good  security,  the  alarm  of  the  solvent  merchants  and 
bankers  will  be  stayed.  But  if  securities  really  good  and  usually 
convertible  are  refused  by  the  banks,  the  alarm  will  not  abate,  the 
other  loans  made  will  fail  in  obtaining  their  end,  and  the  panic  will 
become  worse  and  worse. 

130.     The  Part  of  Individual  Responsibility^' 

BY  THEODORE  E.  BURTON 

The  only  sure  remedy  for  these  periods  of  depression  is  that  sug- 
gested by  Lord  Beaconsfield,  "the  alchemy  of  patience."  The  de- 
pression is  a  condition  that  must  be  recognized  and  met ;  any  attempt 
to  ignore  it  or  to  indulge  in  confidence  when  there  is  no  ground  for 
it -will  only  involve  further  disaster.  A  cure  cannot  be  hastened 
except  by  the  best  of  care  and  the  co-operation  of  the  patient.  At 
the  same  time  there  is  every  ground  for  confidence  in  the  ultimate 
recovery. 

Too  much  confidence  must  not  be  placed  in  the  action  of  govern- 
ment. Just  as  good  laws  and  effective  administration  are  rather 
essentials  of  prosperity  than  creative  of  it,  so  also  they  are  more 
potent  in  preventing  depressions  than  in  remedying  them.  So  far  as 
human  agency  is  concerned,  intelligent  individual  action  must  do  the 
most. 

Upon  the  individual  as  investor  hangs  a  heavy  responsibility.  He 
should  follow  rules  enjoining  prudence  and  careful  calculation,  par- 
ticularly that  of  Professor  Jevons:  "In  making  investments  it  is 
foolish  to  do  what  other  people  are  doing,  because  there  are  always 
sure  to  be  too  many  people  doing  the  same  thing."  Were  this 
heeded,  investments  would  distribute  themselves  more  evenly,  caus- 
ing industry  to  pursue  a  steadier  course. 

In  the  same  connection  is  a  rule  worthy  of  consideration — 
namely,  to  be  careful  about  investing  in  undertakings  from  which  an 
exceptional  return  has  been  realized.  Profits  in  all  enterprises  tend 
toward  equality.  After  making  due  allowance  for  the  skill  and  trust- 
worthiness required,  risk  incurred,  and  regularity  of  employment, 

•^Adapted  from  Financial  Crises,  267-26^.  Copyright  by  D,  Appleton  & 
Co.  (1902^ 


TEE  BUSINESS  CYCLE  261 

investments  afford  approximately  the  same  profit.  If  there  is  an 
exceptional  return  from  any  line  of  investment,  it  is  almost  certain 
that  the  business  will  be  overdone. 

Divers  suggestions  might  be  made  upon  the  necessity  for  higher 
standards  of  honesty  and  better  education.  But  these  are  obvious 
enough,  and  their  attainment  must  be  worked  out  in  lines  other  than 
economic. 

Many,  discrediting  the  ability  of  individuals  to  work  out  their 
own  salvation,  have  proposed  the  construction  of  public  works  in 
times  of  depression.  The  danger  of  this  is  that  people  will  fall  into 
the  fallacy  of  working  for  the  sake  of  working,  and  will  not  appre- 
ciate the  fact  that  work  is  valuable  only  in  case  it  produces  some- 
thing of  utility.  A  definite  market  value  is  a  trustworthy  guide  to 
utility  which  is  absent  in  such  cases.  There  is  the  further  danger 
that  as  numerous  laborers  are  withdrawn  from  their  usual  lines  of 
employment  to  engage  in  public  work,  they  will,  when  times  have 
improved,  be  unable  or  unwilling  to  return  to  their  former  employ- 
ments, and  thus  the  productive  power  of  the  country  will  be  crippled. 
It  is  true,  however,  that  municipalities  and  states  are  greatly  bene- 
fited by  certain  improvements  which  are  of  permanent  value,  and  to 
which  capital  may  appropriately  be  applied,  such  as  good  roads, 
better  sewers,  paved  streets,  etc.  At  a  time  when  materials  are  low 
and  labor  is  unemployed,  these  improvements  may  profitably  be 
made,  provided  they  are  carefully  considered  with  a  view  to  their 
permanent  value,  and  not  merely  with  the  object  of  giving  employ- 
ment. 

In  short,  education  and  experience  must  lead  to  a  more  intelligent 
direction  of  productive  energy.  Patient,  well-directed  effort  must 
meet  the  problems  presented  by  changes  from  year  to  year.  It  is 
best  not  to  depend  upon  the  government  of  any  country  for  relief, 
but  upon  the  individual  action  of  its  citizens.  There  is  much  founda- 
tion for  the  saying  of  Jeremy  Bentham:  "Industry  and  commerce 
ask  of  the  state  that  which  Diogenes  asked  of  Alexander,  'Keep  out 
of  my  sunshine.' " 

131.     Bettering  Business  Barometers" 

BY  WESLEY  C.  MITCHELL 

The  American  man  of  affairs  who  seeks  to  keep  informed  about 
the  trend  of  business  conditions  relies  upon  the  financial  columns  of 
his  daily  paper,  one  or  two  of  the  financial  weeklies,  and  a  special 

''Adapted  from  Business  Cycles,  591-595.  Copyright  by  the  author 
(19x3).     Published  by  The  University  of  California  Press. 


262  CURRENT  ECONOMIC  PROBLEMS 

trade  journal.    The  data  which  he  can  compile  from  these  sources 
cover  a  considerable  range. 

Commodity  prices  at  wholesale  are  represented  by  actual  quota- 
tions and  by  index  numbers  like  Bradstreet's.  The  prices  of  loans  on 
call  and  on  time  for  thirty  days  to  six  months  are  reported  for  New 
York,  together  with  the  market  and  bank  rates  in  London,  Paris,  and 
Berlin.  The  prices  of  securities  are  published  in  detail,  and  to  show 
the  general  trend  of  the  market  there  are  convenient  records,  such  as 
the  Wall  Street  Journal's  average  of  twenty  railway  and  twelve  in- 
dustrial stocks. 

Fluctuations  in  the  volume  of  business  must  be  estimated  from 
various  sources :  bank  clearings,  railways'  gross  earnings,  number  of 
idle  cars,  imports  and  exports,  coal,  copper,  pig-iron  and  steel  output, 
shipments  of  grain,  live  stock,  etc.  Government  crop  reports  help  to 
forecast  the  probable  state  of  trade  in  various  agricultural  sections. 
Quite  helpful  are  the  reviews  of  business  conditions  in  different  pa- 
pers. 

Information  about  the  currency  is  supplied  by  the  official  esti- 
mates of  the  monetary  stock,  by  reports  of  gold  imports  and  exports, 
by  the  recorded  movements  of  money  into  and  out  of  the  New  York 
banks,  and  by  the  figures  concerning  the  production  and  industrial 
consumption  of  gold,  and  the  distribution  of  money  between  the 
banks  and  the  public.  Regarding  the  banks  there  are  telegraphic 
statements  from  the  central  institutions  of  Europe,  as  well  as  a  va- 
riety of  domestic  reports  from  clearing-house  and  national  and  state 
banks. 

Some  idea  of  the  volume  of  investment  and  speculation  going  on 
may  be  obtained  from  the  transactions  of  the  New  York  Stock  Ex- 
change, the  number  of  building  permits  granted,  the  mileage  of  rail- 
way under  construction,  etc. 

Last  and  most  important,  the  prospects  of  profits  are  best  shown 
for  the  railways,  whose  gross  and  net  earnings  are  regularly  pub- 
lished. The  earnings  of  the  United  States  Steel  Corporation  prob- 
ably stand  second  in  general  esteem.  Then  comes  a  mass  of  infor- 
mation supplied  by  the  reports  of  large  corporations  engaged  in 
mining,  manufacturing,  banking,  etc.  The  other  side  is  shown  by 
the  statistics  of  bankruptcy  compiled  weekly  by  two  great  mercantile 
agencies.. 

Though  far  from  complete,  this  list  of  materials  is  far  too  long 
for  the  average  business  man.  To  compile  and  analyze  the  available 
data  requires  more  time,  effort,  statistical  skill,  and  analytical  ability 
than  most  men  have  for  the  task.  Hence  the  typical  individual  skips 
the  bewildering  evidence  and  reads  only  the  summary  conclusions 


THE  BUSINESS  CYCLE  263 

drawn  by  the  financial  editor.  That  the  studying  of  business  barome- 
ters and  the  forecasting  of  business  weather  has  become  a  profitable 
business  affords  convincing  proof  of  the  need  and  difficulty  of  using 
effectively  the  available  materials.  It  is  from  such  specialists  that 
we  may  expect  the  improving  and  disseminating  of  the  information 
required  as  a  basis  for  perfecting  social  control  over  the  workings 
of  the  money  economy. 

Professional  forecasters  do  not  find  the  data  at  hand  too  elab- 
orate. What  they  most  need  to  improve  their  forecasts  is  more  ex- 
tensive and  more  reliable  materials  to  work  upon.  But  it  is  also 
quite  possible  to  better  the  use  they  make  of  the  data  already  avail- 
able. 

Among  the  most  needed  additions  to  the  list  of  business  barom- 
eters are  the  following : 

A  general  index  number  of  the  physical  volume  of  trade  could 
be  made  from  data  showing  the  production  of  certain  staples,  the 
shipment  or  receipts  of  others,  the  records  of  foreign  commerce, 
etc.  Much  material  for  this  purpose  is  already  incidentally  provided 
in  official  documents.  Separate  averages  should  be  struck  for  the 
great  departments  of  industry,  since  the  difference  between  the  rela- 
tive activity  in  different  lines  would  often  be  not  less  significant  than 
the  computed  changes  in  the  total. 

The  proposed  plan  for  obtaining  reports  concerning  the  volume 
of  contracts  let  for  construction  work  and  the  percentage  of  work 
performed  on  old  contracts  merits  careful  consideration.  Few  sets 
of  figures  would  give  more  insight  into  business  conditions  when 
prosperity  was  verging  toward  a  crisis  or  when  depression  was  en- 
dangering prosperity. 

An  index  number  of  the  relative  prices  of  bonds  and  corre- 
sponding figures  showing  changes  in  interest  rates  upon  long-time 
loans  would  not  be  difficult  to  prepare.  Even  if  standing  alone  these 
two  series  would  possess  great  value  as  reflecting  the  attitude  of 
investors;  but  they  would  be  still  more  useful  if  accompanied  by 
data  concerning  the  amounts  of  bonds  and  short-term  notes  put 
upon  the  market  by  business  enterprises  and  by  governments. 

Certain  states  have  made  a  beginning  in  providing  statistics  of 
unemployment.  But  we  have  no  comprehensive  data  of  this  kind. 
Their  value,  not  only  as  an  index  of  welfare  among  wage-earners,  but 
also  as  reflecting  changes  of  activity  within  important  industries 
and  changes  in  the  demand  for  consumers'  goods,  is  such  as  to  make 
the  present  lack  a  matter  of  general  concern. 

Most  to  be  desired  are  statistics  which  would  show  the  relative 
fluctuations  of  costs  and  prices.    Unhappily  the  difficulties  in  the  way 


264  CURRENT  ECONOMIC  PROBLEMS 

of  obtaining  such  figures  are  particularly  grave.  But  certainly  every 
extension  of  public  authority  over  corporate  activity  should  be 
utilized  to  secure  such  uniform  methods  of  accounting  as  have  been 
imposed  on  the  interested  railways,  and  the  reports  obtained  by  the 
government  should  be  made  available  in  some  significant  form  for 
the  information  of  the  business  public. 

The  old  barometers  of  business  could  also  be  considerably  im- 
proved. The  index  numbers  of  commodity  prices  at  wholesale 
would  be  more  useful  if  separate  series  were  computed  for  raw  ma- 
terials and  for  the  articles  manufactured  from  them,  and  if  the  raw 
materials  were  subdivided  into  farm,  animal,  forest,  and  mineral 
products.  The  diflferences  between  the  fluctuations  of  these  several 
groups  would  be  of  assistance  in  determining  the  causes,  and  there- 
fore the  significance  of  changes  in  the  grand  total.  Further,  an 
index  number  of  identical  commodities  in  the  United  States,  Eng- 
land, France,  and  Germany  would  facilitate  the  effort  to  follow 
the  concomitant  courses  of  business  cycles  in  dififerent  countries 
and  to  anticipate  the  reaction  of  foreign  upon  domestic  conditions. 

Stock  prices  should  be  computed  upon  the  index  number  plan 
instead  of  in  the  current  form  of  averaging  actual  prices  of  shares. 
To  facilitate  comparisons  the  basis  chosen  should  agree  with  that 
chosen  for  commodity  prices.  The  distinctively  investment  stocks 
should  be  separated  from  the  speculative  favorites,  and  separate 
averages  should  be  struck  for  railways,  public  utilities,  and  indus- 
trials. By  proper  selection  fluctuations  in  the  prices  of  industrial 
stocks  might  be  made  to  reflect  the  fortunes  of  enterprises  especially 
concerned  with  providing  industrial  equipment. 

Reports  of  clearings  would  be  more  useful  if  accompanied  by 
index  numbers  showing  the  relative  magnitude  of  the  changes  in 
the  actual  amounts.  Separate  averages  for  these  figures  should  be 
provided  for  the  centres  in  which  financial  operations,  industrial 
activity,  and  agricultural  conditions  are  the  dominant  factors.  Fi- 
nally, one  of  -the  darkest  points  of  current  business  conditions  in 
America  could  be  cleared  up  if  the  rates  of  discount  upon  first-class 
commercial  paper  in  these  various  centres  could  be  regularly  ascer- 
tained. 

To  extend  the  list  of  suggestions  for  bettering  figures  of  the 
sorts  already  published  would  be  easy;  but  enough  has  been  said 
to  make  clear  the  character  of  the  desirable  changes.  '  In  general, 
the  need  is  for  more  careful  discrimination  between  dissimilar  data 
now  often  lumped  together  in  a  single  total,  the  collecting  from  new 
centres  of  data  already  published  for  New  York,  more  uniform 
methods  of  compilation  to  guarantee  the  comparability  of  what  pur- 


THE  BUSINESS  CYCLE  265 

port  to  be  similar  figures,  and  the  computing  of  relative  fluctuations 
upon  a  common  basis.  In  many,  if  not  all  these  cases,  a  double  set 
of  relative  figures  is  desirable — one  set  referring  to  actual  average 
amounts  in  some  fixed  decade,  the  other  set  making  comparisons 
with  the  corresponding  period  of  the  previous  year. 

132.     The  Severity  of  the  Trade  Cycle  in  America 

BY  W.  A.  PATON 

The  peculiar  characteristics  of  Modern  Industrialism  which 
make  it  susceptible  to  serious  disturbance  are  too  well  known  to  re- 
quire detailed  description.  They  include  the  detached  and  imper- 
sonal relations  between  producer  and  consumer,  and  producer  and 
investor;  the  interdependent  nature  of  co-operative  production;  the 
extreme  length  of  the  productive  process ;  the  unstable  character  of 
demand  in  dynamic  society,  and  frequent  and  radical  changes  in 
technique.  These  characteristics  are  universal  throughout  the  West- 
ern world;  yet  American  industry  has  been  particularly  subject  to 
industrial  disturbance. 

The  inadequacy  of  our  banking  system  and  credit  facilities  has 
often  been  urged  as  the  explanation.  Since  we  use  credit  to  a  far 
greater  extent  than  European  countries,  we  have  particular  need 
for  stability  in  banking  and  credit.  It  is  hoped  that  the  new  Federal 
Reserve  System,  by  giving  in  a  higher  degree  than  before  these 
characteristics,  will  do  much  to  modify  the  severity  of  the  ebb  and 
flow  of  the  trade  cycle.  But  it  needs  to  be  emphasized  that  banking 
reform  can  never  be  more  than  a  palliative.  Lax  banking  and  un- 
sound currency  systems  do  something  to  breed  speculative  fever. 
But  the  fundamental  conditions  leading  to  the  severity  of  these  dis- 
turbances lie  deeper. 

First  among  these  is  the  supreme  optimism  which  has  always 
characterized  American  industrial  development.  Here  was  a  vast 
new  continent,  with  an  abundance  of  land,  minerals,  natural  power, 
and  other  resources  untouched.  People  from  all  countries  were 
drawn  into  the  task  of  developing  these  resources.  To  them  America 
was  the  long-sought-for  "promised  land."  There  were  no  rigid  class 
walls;  there  existed  every  opportunity  for  "self -development."  A 
loose  social  system  and  the  reaction  of  the  physical  environment 
made  it  inevitable  that  the  bourgeoise  attitude  should  prevail.  The 
immigrant  who,  as  a  peasant  in  Europe,  has  no  thought  of  chang- 
ing his  status ;  the  native  frontiersman,  Yankee  son  of  the  old  New 
Englander;  the  prospector  looking  for  diggings — in  each  you  had 


266  CURRENT  ECONOMIC  PROBLEMS 

the  would-be  capitalist.  There  was  also  the  man  with  capital  look- 
ing for  sudden  wealth  in  the  shape  of  land  concession,  franchise 
rights,  or  public  contracts.  The  situation,  the  large  class  of  specu- 
lative investors,  great  and  small,  and  the  political  organization,  mak- 
ing a  fetish  of  the  principle  of  let-alone,  could  not  but  induce  a 
highly  speculative,  over-optimistic  attitude  toward  industry. 

A  partial  justification  of  American  optimism  made  it  the  more 
speculative.  The  scarcity  of  labor  incident  to  the  opening  of  a  new 
country,  the  demand  for  improved  transportation  facilities  to  permit 
the  utilization  of  new  lands  and  new  resources,  and  the  rapid  and 
comprehensive  extension  of  the  machine  technique  into  line  after 
line  of  production,  did  much  to  convince  the  American  that  any- 
thing is  possible. 

The  changes  in  industrial  technique  have  been  more  rapid  and 
more  extensive  than  in  any  other  country.  The  greater  and  increas- 
ing dependence  upon  machinery  has  led  to  increasing  complexity  in 
the  productive  process,  as  well  as  to  its  greater  length.  The  dis- 
turbance in  the  labor  market,  such  as  temporary  unemployment, 
which  has  been  chronically  incident  to  its  introduction,  is  but  a  single 
example  of  the  strain  and  shock  to  which  the  system  as  a  whole 
has  been  subjected. 

But  minor  causes  have  also  been  at  work.  The  influx  of  labor- 
ers from  abroad  has  continually  altered  the  proportions  between 
the  productive  factors.  In  this  country,  filled  with  people  who  have 
broken  away  from  their  old  surroundings,  custom  and  tradition 
have  had  comparatively  little  force ;  among  us  it  has  been  hard  for 
conventions,  even  those  adapted  to  the  new  situation,  to  be  built  up ; 
and  the  situation  as  a  whole  has  been  particularly  sensitive  and 
variable,  especially  in  demand. 

This  brief  statement  suggests  the  essential  aspects  of  the  Amer- 
ican industrial  structure  which  has  given  it  its  peculiar  dynamic 
character,  and  has  made  it  more  highly  sensitive  to  irregularity 
than  that  of  any  other  country.  A  word  should  be  added  to  indi- 
cate how  these  conditions  may  intensify  the  severity  of  the  trade 
cycle.  The  great  speculative  optimism  of  the  American  people,  to- 
gether with  the  need  of  improved  technological  equipment,  leads  to 
a  greatly  increased  demand  for  capital  goods — producer's  goods. 
This  means  that  a  great  deal  of  labor  power  and  a  large  volume  of 
capital  are  devoted  to  producing  these  kinds  of  goods.  In  other 
words,  in  America  there  is  an  unusual  heaping  up  of  society's  pro- 
ductive resources  in  the  initial  stages  of  the  long-time  process.  This 
process  continues  for  some  time,  the  boom  period.  The  length  of 
time  necessary  to  permit  these  investments  to  yield  returns  is  gen- 


THE  BUSINESS  CYCLE  267 

erally  underestimated,  as  was  the  case  particularly  with  many  of 
the  early  American  railway  projects;  and  in  other  cases  the  ven- 
tures are  ill  advised  and  could  never  become  profitable.  In  such  a 
situation  many  entrepreneurs  find  themselves  embarrassed  when 
their  obligations  fall  due,  and  a  great  many  failures  ensue.  Build- 
ing and  development  work  halts  abruptly;  prices  of  raw  materials 
fall  very  sharply ;  all  prices  go  down  in  sympathy,  and  a  more  or  less 
severe  period  of  readjustment  follows. 

In  view  of  the  conditions  above  described,  it  is  difficult  to  see 
how  this  country  could  have  had  its  very  rapid  development  with- 
out these  accompanying  periods  of  stress.  As  the  country  becomes 
older,  as  technique  becomes  more  dependable,  as  social  conventions 
standardize  demand,  as  efficient  government  checks  the  wildest  dis- 
plays of  speculative  fever,  as  speculative  capital  has  to  look  for 
golden  opportunities  abroad,  and  as  we  have  to  look  more  toward 
internal  organization  and  economy,  rather  than  to  external  acci- 
dent, for  industrial  gain,  the  ebb  and  flow  of  trade  depressions  will 
be  less  and  less  severe.  We  are  perhaps  nearer  than  we  know  to  the 
orderly  period  wherein  their  rhythm  is  as  circumscribed  as  in  prosaic 
Europe. 


VI 

PROBLEMS  OF  INTERNATIONAL  TRADE 

Problems  come  and  go,  but  the  tariff  seems  to  be  a  permanent  American 
institution.  In  a  country  where  "every  man  is  his  own  political  economist" 
it  possesses  a  perennial  freshness.  It  has,  time  and  again,  been  proved  guilty 
at  the  polls  of  raising  and  lowering  the  standard  of  living,  of  increasing  and 
decreasing  wages,  of  creating  and  destroying  monopoly,  of  abetting  and  dis- 
couraging immigration,  of  producing  crises  and  causing  prosperity.  In  part 
this  has  been  due  to  an  easy  association  of  the  question  with  sentiments  of 
nationalism;  the  absence  of  grave  social  problems,  such  as  are  found  in 
more  mature  societies ;  and  the  popular  idea  that  it  is  a  simple  and  manage- 
able piece  of  mechanism.  But,  in  part  at  least,  its  popular  hold  has  been 
legitimate.  It  has  been  intimately  associated  with  the  development  of  the 
country,  and  it  has  served  as  an  instrument  for  controlling  our  development. 

However  particular  tariff  questions  may  be  stated,  the  real  issue  lies  in 
the  antithesis  between  protection  and  free  trade,  which  are  the  ends  of  the 
tendencies  underlying  particular  programs. 

The  theory  of  free  trade  is  "a  mere  corollary  to  the  principle  of  the  divi- 
sion of  labor."  Foreign,  like  domestic,  trade,  "allows  increased  specialization," 
and  consequently  "increases  the  aggregate  of  wealth."  A  study  of  the  mech- 
anism of  exchange  shows  that  ^'goods  are  paid  for  with  goods."  "Foreign 
trade  fixes  its  own  limits."  The  tariff,  if  used,  should  have  as  its  object  the 
raising  of  revenue;  it  should  leave  "industrial  conditions  as  it  finds  them." 
The  argument  implies  a  conception  of  industrial  society  in  static  terms,  is  an 
aspect  of  the  general  theory  of  laissez-faire,  and  rests  upon  a  belief  in  the 
efficacy  of  price  as  an  organizing  force. 

The  strength  of  protection  lies  in  a  mercantilist  spirit  as  old  as  society. 
Tradesmen  have  always  been  willing  to  use  agencies  of  social  control  to  in- 
crease their  sales.  This  disposition  is  revealed  in  the  inhibitions  against  buy- 
ing goods  out  of  town,  supported  by  custom  or  opinion;  in  the  attempts  of 
legislatures  to  exempt  manufacturing  establishments  from  taxation;  and  in 
duties  placed  upon  imported  goods. 

Nevertheless,  there  is  a  social  theory  of  protection.  It  rests  upon  the 
concept  of  a  developing  society,  the  necessity  of  social  direction  of  that  de- 
velopment, and  the  possibility  of  determining,  partially  at  least,  its  course  by 
assessing,  raising,  lowering,  and  removing  duties  upon  imported  goods.  It 
implies  a  constant  adaptation  of  the  "tariff  policy"  to  the  changing  condition 
of  the  country.  This  theory  reveals  itself  in  the  arguments  that  protection 
can  transform  an  agricultural  into  an  industrial  society,  develop  a  nation 
strong  in  arms,  add  industry  after  industry  to  the  national  wealth,  and 
"scatter  plenty  o'er  a  smiling  land"  by  piling  up  huge  aggregates  of  capital. 

All  of  these  things,  it  is  asserted,  it  has  accomplished  for  American  so- 
ciety. Unfortunately  we  have  no  trustworthy  evidence  of  the  role  it  has 
played  in  the  transformation  of  our  system.  The  histories  of  the  tariff  are 
largely  records  of  what  has  happened  to  it  rather  than  of  what  it  has  done. 
The  argument  "from  experience"  has  failed  to  disentangle  the  influence  of 
the  tariff  from  the  vast  complex  of  "forces"  which  together  have  made  our 
system  what  it  is.  Yet  it  is  quite  evident  that  the  tariff  has  played  its  part 
in  the  creation  of  our  highly  pecuniary,  industrial,  and  urban  culture.  The 
development  of  manufacturing  and  mining,  upon  which  the  structure  so 

268 


THE  TARIFF  PROBLEM  269 

largely  rests,  would  have  come  without  protection;  for  our  abundant  natural 
resources  could  not  be  ignored;  but  a  highly  accelerated  movement  necessi- 
tated high  prices,  increasingly  large  quantities  of  cheap  labor,  and  larger  and 
larger  aggregates  of  capital.  Protection  promised  high  prices;  the  open  door 
to  immigrants  offered  cheap  labor :  either  would  have  sufficed.  But  to  make 
assurance  doubly  sure  we  chose  both.  Protection,  with  other  agents,  has 
transformed  resources  into  stupendous  incomes,  out  of  which  large  aggregates 
of  capital  have  been  saved  and  reinvested.  Thus  it  has  been  an  active  factor 
in  our  "prosperity,"  It  need  not  be  said  that,  in  view  of  changed  conditions, 
its  potency  in  the  past  is  no  guaranty  that  in  future  it  can  play  an  identical 
role. 

But  our  social  scheme  has  proved  too  complex  for  it  to  accomplish  just 
the  industrial  effects  it  was  intended  to  accomplish  and  no  more.  With  com- 
plementary factors,  it  has  induced  a  gigantic,  clumsy,  feverish  development 
of  manufacturing  and  mining ;  it  has  caused  a  headlong  "lunge"  in  a  particular 
direction.  But  it  has  induced  the  inevitable  attendants  of  this  growth — 
urban  life,  city  comforts,  luxury,  slums,  poverty,  and  vice;  greater  concen- 
tration of  wealth  and  more  pronounced  class  differences ;  a  medley  of  races 
and  a  babel  of  tongues ;  a  clash  of  political  and  ethical  systems ;  a  vast  ar- 
ray of  bewildering  problems.  It  has  been  responsible  for  development  in 
ethics,  politics,  and  social  life,  though  it  has  been  impotent  to  direct  this 
development.  It  has  made  the  attention  to  these  aspects  of  social  life  more 
imperative  than  ever,  though  the  "prosperity"  which  it  has  induced  has  served 
to  delay  our  attention  to  the  question  of  whether  the  older  institutional  sys- 
tem is  adequate  for  the  newer  industrial  life.  In  short,  it  has  induced  growth, 
faster  than  we  have  been  able  or  willing  to  perfect  means  for  controlling  that 
growth.  Its  results,  too,  have  been  accompanied  by  prodigious  waste.  That 
its  "good"  is  so  conspicuous  is  due  largely  to  our  enjoyment  of  gains  from 
the  exploitation — the  ot/e?r-utilization — of  our  natural  resources  and  our  pass- 
ing of  the  costs  to  succeeding  generations. 

Aside  from  the  theoretical  difficulties,  the  method  of  its  use  prevents 
protection  from  being  an  adequate  means  of  social  control.  Since  a  legis- 
lative body  is  depended  upon  for  tariff  laws,  we  may  well  say,  "Protection 
is  all  right  in  theory,  but  it  will  not  work  in  practice."  Did  you  ever  hear  of 
Congress,  when  considering  a  tariff  bill,  giving  attention  to  the  "end"  to  be 
reached,  noting  carefully  the  larger  social  as  well  as  the  purely  industrial  re- 
sults of  anticipated  duties,  carefully  calculating  gains  against  costs,  and  on 
this  basis  fixing  duties  for  periods  just  long  enough  to  secure  the  desired 
results?  Or  have  you  rather  noted  that,  without  attention  to  general  prin- 
ciples and  the  relation  of  particular  duties  to  these,  a  tariff  bill  is  evolved 
through  an  aggregation  of  compromises  between  particular  interests? 

But  the  tariff  is  still  our  heritage.  At  present  there  is  some  disposi- 
tion to  treat  it  as  a  "moral  issue"  intimately  connected  with  the  fact  of 
class  and  the  distribution  of  income.  There  is  a  demand,  perhaps  waning 
but  still  strong,  for  a  "scientific  revision."  This  finds  its  source,  partly  in  a 
protest  against  the  way  in  which  Congress  draws  a  tariff  bill,  and  partly  in  a 
superstitious  reverence  for  whatever  wears  the  label  "scientific."  Its  weak- 
ness is  that  it  fails  to  see  that  science  can  furnish  only  a  mechanism,  and  that 
the  nature  of  the  tariff  depends  largely  upon  the  theory  underlying  legisla- 
tion. There  is  a  cry  for  "freer  trade"  from  manufacturers  who  believe  that 
our  industrial  future  lies  "beyond  the  seas."  And,  of  course,  there  is  the  per- 
ennial cry  for  higher  duties  and  more  of  them.  But,  above  all,  there  is  rea- 
son for  believing  that  the  limitations  of  the  tariff  for  good  or  bad  are  being 
more  clearly  seen,  and  that  in  the  future  it  will  be  supplemented  by  othei 
and  more  delicate  instruments  of  control  which  together  can  impart  to  social 
life  a  more  symmetrical  development. 


27©  CURRENT  ECONOMIC  PROBLEMS 

A.    THE  BASIS  OF  INTERNATIONAL  TRADE 
133.    International  Co-operation^ 

BY  CHARI^ES  GIDE 

The  advantages  of  international  trade  are  not  susceptible  of 
arithmetical  calculation.  They  are  too  complex  for  such  simple 
methods,  and  are  found  on  both  the  side  of  imports  and  that  of 
exports. 

The  following  are  the  advantages  of  importation : 

I.  Additional  well-being  is  imparted  by  the  imported  goods 
which  a  country,  because  of  its  resources  or  climate,  could  not  have 
produced  within  its  own  borders.  For  example,  without  interna- 
tional commerce,  Holland  could  have  no  building  stone,  Switzerland 
no  coal,  England  little  lumber  and  no  wine,  France  no  copper,  and 
the  United  States  no  tea  or  coffee. 

II.  Economy  of  labor  is  realized  when  wealth  is  imported  that 
could  be  produced  at  home  only  at  a  higher  cost  than  abroad.  France 
could  make  good  machinery,  but  it  is  more  profitable  to  import  it 
from  the  United  States,  which  is  better  provided  with  coal,  iron 
and  facilities  for  manufacturing.  To  realize  this  advantage  it  is 
not  necessary  that  the  importing  nation  be  inferior  in  the  production 
of  the  good  it  receives  from  abroad.  It  may  be  to  its  advantage  to 
import  goods  which  it  might  produce  under  even  more  favorable 
conditions  than  the  country  which  sends  them.  Cuba,  for  example, 
might  be  able  to  produce  wheat  more  advantageously  than  the  United 
States,  but  also  to  produce  sugar  even  more  advantageously.  In  this 
case  it  will  be  more  profitable  for  Cuba  to  raise  sugar  and  import 
wheat,  despite  her  advantage  over  the  United  States  in  the  produc- 
tion of  wheat ;  for  thus  she  can  purchase  throueh  suear  wnat  otner- 
wise  would  have  cost  her  more  labor  to  produce.  Thus  it  may  happen 
that  a  country  in  all  points  superior  to  its  neighbors  will  find  it 
profitable  to  import  goods  from  them. 

An  allied  advantage  is  that  whenever  an  accident  of  any  sort 
unexpectedly  reduces  the  productivity  of  one  country,  it  may  depend 
upon  others  to  remedy  this  accident,  which,  in  the  absence  of  inter- 
national commerce,  might  have  disastrous  consequences.  Thus  in- 
ternational commerce  provides  a  kind  of  insurance  against  famines 
and  against  the  severe  stress  of  national  panics  and  depressions. 

Although  a  nation  could  perhaps  produce  a  sufficient  quantity 
of  many  commodities  which  at  present  it  imports,  the  quantity  at 

^Adapted  from  Princii>les  of  Political  Economy,  2d  American  ed.,  303- 
307.  Translated  by  C  William  A.  Veditz.  Copyright  by  D.  C.  Heath  & 
Co.  (1903). 


THE  TARIFF  PROBLEM  271 

home  could  be  increased  only  at  a  verj'  great  cost  in  labor  and 
capital  and  a  consequent  increase  in  prices.  The  United  States,  for 
example,  imports  a  large  quantity  of  lead.  If  imports  were  cut  off, 
it  would  be  necessary  to  work  poorer  mines,  and  incur  the  neces- 
sarily greater  costs,  which,  in  higher  prices,  will  obviously  fall  upon 
the  consumers  of  lead. 

As  for  exportation,  the  following  are  its  advantages : 

I.  It  utilizes  natural  resources  and  productive  forces  which,  if 
there  were  no  foreign  outlet,  would  be  superabundant,  and  there- 
fore partially  useless.  Were  it  not  for  exportation,  Peru  would  not 
know  what  to  do  with  her  nitrates,  Australia  with  her  wool,  Spain 
with  her  wines,  Pennsylvania  with  her  iron  and  steel,  nor  the  South 
with  its  cotton. 

II.  It  develops  a  nation's  industry.  It  is  well  known  that  the 
extent  of  the  division  of  labor  and  the  progress  of  large-scale  pro- 
duction are  proportionate  to  the  size  of  the  market.  Division  of 
labor  cannot  be  at  all  detailed  when  the  market  is  small,  whereas  with 
every  extension  of  the  market  a  more  elaborate  division  of  labor 
and  the  introduction  of  more  expensive  but  in  the  long  run  more 
productive  processes  and  machinery  becomes  possible.  Interna- 
tional trade,  by  creating  world-wide  markets  for  goods,  tends  to  de- 
velop the  division  of  labor;  it  leads  to  a  fuller  utilization  of  the 
possibilities  of  the  soil  and  the  population,  to  a  completer  develop- 
ment of  acquired  aptitudes,  and  hence  to  a  great  increase  of  the 
productive  energy  of  humanity.  England  could  never  have  become 
the  great  manufacturing  nation  it  now  is,  did  it  not  export  to  all 
parts  of  the  world.  The  possession  of  an  extensive  market  made  it 
possible  for  her  to  make  immediate  and  profitable  use  of  the  latest 
inventions  and  improvements  in  manufacturing. 

134.    The  Law  of  Comparative  Costs' 

BY  FRED  M.  TAYLOR 

Here  is  a  lawyer  who  very  likely  can  mow  his  lawn,  cultivate 
his  garden,  and  take  care  of  his  furnace  much  better  than  the  per- 
sons whom  he  hires  to  do  these  things.  But  what  he  does  is  to  de- 
vote himself  to  his  profession,  and  buy  the  services  named  from 
other  people;  and  of  course  he  acts  wisely  in  so  doing.  It  is  clear 
that  he  gains  most  by  devoting  himself  to  the  thing  for  which  he  is 
best  fitted.  He  is  not  interested  in  the  fitness  or  unfitness  of  his 
neighbor  as  compared  with  himself,  but  rather  in  the  superiority  of 

'Adapted  from  Principles  of  Economics,  2d  ed.,  7S-77'  Copyright  by 
the  author.     Published  by  the  University  of  Michigan   (1913). 


272  CURRENT  ECONOMIC  PROBLEMS 

his  own  fitness  in  one  line  as  compared  with  his  fitness  in  another 
line.  So  long  as  he  can  find  a  market  for  his  output,  it  is  better  for 
him  to  devote  his  time  to  doing  the  things  for  which  he  is  pre- 
eminently fitted,  and  get  his  supplies  of  other  things  from  his  neigh- 
bors, even  though  he  can  make  those  other  things  better  than  they. 

It  is  evident  that  in  this  respect  the  case  of  the  community  or  the 
nation  is  like  that  of  the  individual.  The  upper  peninsula  of  Mich- 
igan produces  little  but  copper  and  iron,  getting  most  other  goods 
through  exchange  with  other  communities.  Yet  it  would  be  easy  to 
prove  that  this  section  is  really  better  fitted  to  produce  some  of  the 
things  which  it  buys  than  the  sections  from  which  it  buys  them. 
The  explanation  is  to  be  found  in  what  has  long  been  known  as  the 
Law  of  Comparative  Costs.    It  may  be  stated  as  follows : 

Ignoring  cost  of  transportation,  two  communities  find  it  profit- 
able to  specialize  respectively  in  the  production  of  two  commodities 
and  to  exchange  those  commodities  each  for  the  other,  provided  the 
comparative  real  costs  of  the  two  commodities  in  one  community 
are  different  from  their  comparative  real  costs  in  the  other  com- 
munity. 

Let  us  illustrate.  Letting  labor  represent  all  real  costs,  suppose 
that  in  England  the  cost  of  a  ton  of  iron  is  25  days'  labor  and  the 
cost  of  a  yard  of  broadcloth  is  5  days'  labor;  while  in  America  the 
cost  of  iron  is  16  days'  labor  and  that  of  broadcloth  4  days'  labor. 
These  costs  may  be  expressed  in  the  following  proportions : 
Eng.  cost  Iron :  Eng.  cost  Cloth : :  25 :  5 
Amer.  cost  Iron:  Amer.  cost  Cloth::  16:4 

Since  in  England  a  ton  of  iron  costs  five  times  as  much  as  a  yard 
of  cloth,  it  will  naturally  tend  to  be  worth  the  same  as  five  yards 
t)f  cloth;  under  which  conditions  England  can  afford  to  give  iron 
for  cloth  if,  and  only  if,  she  can  get  more  than  five  yards  per  ton; 
or  trade  cloth  for  iron  if,  and  only  if,  she  can  get  it  with  less  than 
five  yards  per  ton.  In  America,  on  the  other  hand,  a  ton  of  iron 
tends  to  be  worth  four  yards  of  cloth ;  under  which  conditions  Amer- 
ica can  afford  to  trade  iron  for  cloth  if,  and  only  if,  she  can  get 
more  than  four  yards  per  ton ;  or  to  trade  cloth  for  iron  if,  and  only 
if,  she  can  get  it  with  less  than  four  yards.  But  the  first  hypothesis 
for  England  and  the  second  for  America  are  plainly  shut  out.  Eng- 
land cannot  get  more  than  five  yards  of  cloth  for  iron,  since  in  Amer- 
ica it  is  worth  only  four  yards.  So  America  cannot  buy  with  less 
than  four  yards  of  cloth  since  it  is  worth  five  yards  in  England.  On 
the  other  hand,  the  second  hypothesis  for  England  and  the  first  for 
America  fit  each  other  perfectly.  England  can  get  iron  for  less  than 
five  yards,  since  it  is  worth  only  four  in  America ;  and  America  can 


THE  TARIFF  PROBLEM  273 

sell  iron  for  more  than  four  yards  of  cloth,  since  it  is  worth  five  in 
England.  Accordingly,  under  the  conditions  supposed,  an  exchange 
of  English  cloth  for  American  iron  would  be  profitable. 

It  goes  without  saying  that  if  one  nation  is  absolutely  inferior  to 
its  neighbor  in  respect  to  the  production  of  one  commodity  and  abso- 
lutely superior  in  respect  to  the  production  of  another,  then,  obvi- 
ously, the  comparative  costs  of  these  commodities  in  one  country 
are  different  from  their  comparative  costs  in  the  other,  and  so  ex- 
changing them  will  pay. 

But,  as  the  argument  above  has  shown,  it  is  equally  clear  that 
if  a  nation  is  absolutely  superior  to  another  in  the  production  of 
each  of  two  commodities,  it  will  produce  the  one  in  which  its  su- 
periority is  the  greater,  and  will  import  the  latter.  Likewise,  if  a 
nation  is  inferior  to  its  neighbor  in  each  of  two  commodities,  it  will 
produce  the  one  in  which  its  inferiority  is  less,  and  import  the  other. 

135.     The  Theory  of  Free  Trade 

The  theory  of  free  trade  is  nothing  else  than  a  deduction  from 
the  advantages  of  foreign  trade,  or  rather,  of  trade.  The  industrial 
policy  of  a  people  is  concerned,  not  with  the  welfare  of  classes  or 
the  productive  profits  of  particular  individuals,  but  with  securing 
for  the  people  as  a  whole  from  the  limited  social  resources  at  their 
command  the  largest  amount  of  material  wealth.  This  involves  a 
problem  of  economic  organization.  This  problem  can  be  solved  in 
two  ways,  logically  antithetical,  as  well  as  in  innumerable  intermedi- 
ate ways  which  combine  the  two  primary  solutions. 

The  one  is  the  resolution  of  the  economic  world  into  a  large 
number  of  infinitely  small  districts.  In  each  district  there  is  a  body 
of  people,  a  fund  of  accumulated  capital,  and  land  possessed  of 
definite  productive  powers.  The  people,  capital,  and  products  of 
each  district  are  to  be  kept  clearly  within  the  confines  of  the  district. 
Commercial  intercourse  and  personal  movement  from  district  to  dis- 
trict are  to  be  prohibited.  Thus  each  district  is  called  upon  to  solve 
its  own  problem  in  economic  organization.  It  must  directly  satisfy 
the  wants  of  its  own  people;  to  that  end  it  is  compelled  to  make  the 
best  possible  accommodation  of  its  labor  and  capital  to  its  natural 
resources.  It  need  not  be  said  that  under  such  a  system  of  small  self- 
sufficient  units,  few  wants  could  be  satisfied;  little  capital  could  be 
accumulated;  the  advantages  of  specialization  would  be  lost;  little 
natural  skill  could  be  developed  ;  and  only  limited  potentialities  of  the 
natural  resources  could  be  utilized. 

The  alternative  is  the  treatment  of  the  economic  world  as  a 
single  industrial  unit.     Population  and  capital  are  to  be  allowed 


274  CURRENT  ECONOMIC  PROBLEMS 

freely  to  move  wherever  they  please ;  there  is  to  be  no  barrier  to  the 
free  exchange  of  goods.  The  problem  of  economic  organization  is 
to  be  worked  out  for  the  economic  world  as  a  single  entity.  Under 
freedom  from  interference,  population  ana  capital  will  gravitate  to- 
wards those  places  where  they  can  get  the  largest  returns,  or  where 
they  can  best  utilize  nature's  contributions.  Where  they  go,  indus- 
tries will  be  established.  The  goods  produced  will  not  have  to  be 
consumed  in  the  region  in  which  they  are  produced ;  they  will  like- 
wise naturally  seek  the  places  where  they  can  command  the  high- 
est prices.  Under  this  system  the  people  of  any  territory  do  not  seek 
directly  to  supply  all  their  own  wants.  They  produce  surpluses  of 
the  goods  in  the  making  of  which  natural  resources  or  acquired  skill 
make  them  pre-eminently  fit,  and  exchange  them  for  similar  sur- 
pluses produced  by  their  neighbors,  far  or  near.  Such  an  economic 
organization  is  nothing  else  than  a  territorial  division  of  labor.  It 
makes  industry  more  efficient  through  the  better  utilization  of  natural 
resources,  through  the  development  of  specialized  skill,  and  through 
the  larger  volume  of  capital  accumulated  out  of  the  larger  earnings. 
The  expenses  of  trade  are  a  tax  upon  this  system;  but  the  exchange 
which  trade  makes  possible  pays  at  least  its  own  expenses.  If  it 
failed  to  do  so,  it  could  not  be  carried  on.  In  the  majority  of  cases 
it  yields,  in  addition,  a  surplus  to  both  parties. 

Neither  of  these  alternatives  can  be  perfectly  realized.  The 
former  cannot  be,  because  it  is  practically  impossible  to  find  a  unit 
of  territory  logically  small  enough.  The  latter  cannot  be,  because 
of  the  expenses  of  transportation.  The  cost  entailed  by  distance  will 
always  involve  the  element  of  a  scattering  over  wide  territories  of 
the  establishments  producing  many  separate  goods.  It  will  permit 
only  a  few  localized  industries  to  satisfy  world-wide  demands.  But 
distance  is  to  be  looked  upon,  not  as  a  friend,  but  an  enemy,  to  ma- 
terial progress.  Every  invention  in  transportation  which  reduces  the 
costs  of  carriage  is  to  be  regarded  as  a  means  to  greater  social 
economy,  and  as  an  effective  device  for  extending  still  further  the 
market,  specializing  more  narrowly  in  production,  and  swelling  the 
volume  of  material  goods.  On  the  contrary,  everything  which  in- 
creases costs  must  be  looked  upon  as  a  device  tending  to  break  society 
up  into  smaller  groups,  decrease  the  area  of  the  market,  and  reduce 
the  amount  of  material  wealth.  Now,  protection  is  a  system  of  taxes 
the  object  of  which  is  to  cause  industrial  society  to  be  organized 
in  a  smaller  group  than  otherwise  it  would  be.  It  is  nothing  else 
than  an  increase  in  the  costs  of  carrying  goods  from  place  to  place. 
Consequently  its  interference  with  the  establishment  of  a  natural 
economic  organization  prevents  the   fullest  utilization   of   limited 


TEE  TARIFF  PROBLEM  275 

social  resources  and  leads  to  the  production  of  a  smaller  volume  of 
goods  than  would  be  attained  through  free  trade. 

The  theory  of  free  trade  is  premised  upon  the  proposition  that  a 
trade  yields  an  advantage,  not  to  one,  but  to  both  parties  to  the 
transaction.  Since  society  is  an  aggregate  of  individuals,  trade  in 
aggregate  yields  a  corresponding  advantage.  Political  lines  are  arti- 
ficially drawn.  Their  presence  cannot  affect  either  the  nature  or 
the  advantages  of  trade.  Therefore  the  way  to  fullest  national  pros- 
perity, not  for  particular  individuals  or  industries,  but  for  society 
as  a  whole,  is  through  the  policy  of  untrammeled  commerce. 

B.    THE  MECHANISM  OF  INTERNATIONAL  TRADE 
136.     The  Theory  of  International  Exchange 

Let  us  try  to  determine  how  settlement  is  made  by  a  country  for 
goods  bought  abroad.  It  is  evident  that  the  trade  in  question  is  not 
between  the  countries  involved,  but  between  individuals  living  in 
these  countries.  To  get  to  the  heart  of  the  matter,  let  us  take' a  very 
simple  illustration : 

Suppose  that  Brown,  a  New  York  exporter  of  wheat,  sells  to 
Carpenter,  a  London  importer  of  wheat,  10,000  bushels  of  wheat  at 
the  rate  of  five  bushels  for  £1.  Suppose,  too,  that  at  approximately 
the  same  time,  Dixon,  a  London  exporter  of  china,  sells  to  Andrews, 
a  New  York  china  merchant,  a  consignment  of  china  valued  at 
£2,000.  It  is  evident  that  as  the  matter  stands,  Andrews  in  the 
United  States  must  remit  £2,000  to  Dixon  in  London,  and  that  Car- 
penter in  London  must  remit  £2,000  to  Brown  in  the  United  States. 
If  each  debtor  sent  the  actual  money  to  his  creditor,  the  money  would 
have  to  cross  the  ocean  and  come  back  again. 

But,  cannot  some  economy  be  devised  to  avoid  the  trouble  and 
expense  of  this  useless  shipment?  It  can  be  done  very  simply. 
Brown,  let  us  say,  meets  Andrews.  He  tells  Andrews  of  his  sale  of 
grain ;  Andrews,  in  turn,  tells  him  of  his  importation  of  china.  To- 
gether they  hit  upon  a  plan  of  avoiding  the  shipment  of  gold  to 
cancel  the  debts.  Brown  writes  out  an  order  on  Carpenter  instruct- 
ing him  to  pay  the  sum  due  him  to  Andrews.  This  he  presents  to 
Andrews,  who,  in  return,  pays  him  in  gold  the  American  equivalent 
of  £2,000.  Since  the  amount  of  gold  in  one  pound  sterling  is  equal  to 
$4.8665,  this  amounts  to  2,000  times  $4.8665.  Andrews  indorses  the 
order  which  he  has  received  from  Brown  and  sends  it  to  Dixon  in 
payment  for  his  china.  Dixon,  in  turn,  presents  it  to  Carpenter,  who 
pays  him  £2,000.  Thus,  it  is  evident,  both  Brown  and  Dixon  have 
been  paid  in  full  the  amounts  due  them,  and  Andrews  and  Carpenter 


276  CURRENT  ECONOMIC  PROBLEMS 

have  discharged  their  full  indebtedness;    Yet  not  a  single  gold  coin 
has  made  the  ocean  voyage. 

Although  the  illustration  just  taken  is  much  simpler  than  what 
actually  happens,  it  fully  embodies  the  principles.  There  are  three 
complications  which  keep  the  matter  from  working  out  so  simply. 
The  first  is  that  the  Brown  and  Andrews  of  our  illustration  are  not 
likely  to  know  each  other  personally.  This  difficulty  is  obviated  by 
the  establishment  of  exchanges.  Brown  takes  his  draft  to  the  ex- 
change and  sells  it,  thus  securing  payment  for  the  amount  due  him. 
Andrews  goes  to  the  exchange  and  buys  a  draft,  which  he  sends  to 
Dixon  in  discharge  of  his  obligation.  An  exchange  broker  acts  as 
intermediary,  and  the  matter  is  as  nicely  handled  as  in  the  illustra- 
tion above. 

The  second  difficulty  is  that  the  drafts  bought  by  the  exchange 
are  not  always  of  just  the  denominations  to  accommodate  those  who 
wish  to  discharge  foreign  indebtedness.  This  difficulty  is  as  easily 
obviated.  The  exchange,  let  us  say,  establishes  a  London  branch. 
Drafts  bought  are  sent  to  London  for  collection.  The  collections 
are  deposited  to  the  order  of  the  New  York  house.  This  constitutes 
a  fund  against  which  new  drafts  can  be  drawn  by  the  New  York 
exchange  broker. 

The  third  difficulty  is  that  at  any  particular  time  imports  and 
exports  do  not  balance.  Consequently  there  is  a  tendency  for  the 
demand  for  and  supply  of  bills  to  fail  of  exact  correspondence.  But 
this  difficulty,  too,  is  overcome,  at  least  partially.  What  is  bought  and 
sold,  it  must  be  remembered,  is  gold  to  be  delivered  at  a  particular 
place,  London.  If  the  demand  and  supply  are  in  exact  correspond- 
ence, the  price  of  £1  in  London  will  be  practically  $4.8665.  This 
figure  is  found  by  dividing  the  number  of  grains  of  pure  gold  in  a 
pound  sterling  by  the  number  of  grains  in  a  dollar.  But  they  are 
not  always  in  exact  correspondence.  Let  us  see  how  much  they  can 
vary.  Now  it  is  obvious  that  Brown  has  two  alternatives.  He  can 
sell  his  draft,  or  he  can  have  the  gold  due  him  collected  in  London 
and  brought  to  New  York.  To  take  the  latter  alternative  will  cost 
him  in  freight  and  insurance  charges  nearly  3  cents.  Since  he  col- 
lects $4.8665  in  London,  he  will  receive  net  about  $4.8385.  Ac- 
cordingly, it  is  to  his  advantage  to  sell  his  draft,  rather  than  import 
the  gold,  if  he" can  secure  for  it  anything  above  $4.8365.  Similarly, 
Andrews  has  two  alternatives.  He  can  buy  a  draft,  or  he  can  send 
gold  to  London  to  discharge  his  indebtedness.  Since  it  will  cost 
him  about  3  cents  per  £1  to  follow  the  latter  course,  this  will  amount 
to  paying  $4.8965  for  every  £1  due  in  London.  Accordingly  he  will 
prefer  to  buy  a  draft  if  he  can  secure  it  for  a  figure  lower  than 


THE  TARIFF  PROBLEM  277 

^^4.8965.  The  figures  $4.8365  and  $4.8965  are,  therefore,  called  "the 
gold  points,"  the  former  being  the  importing  point,  and  the  latter  the 
exporting  point  for  gold. 

It  will  be  shown  in  a  later  reading  that  as  the  rate  of  exchange 
tends  to  approach  the  lower  point,  owing  to  extensive  selling  abroad, 
this  in  itself  stimulates  imports,  which  tend  to  increase  the  demand 
for  exchange  and  hence  to  lower  its  price.  And,  similarly,  when 
the  rate  tends  to  approach  the  higher  point,  exportation  is  stimu- 
lated, and  as  a  result  more  bills  are  thrown  on  the  market,  thus 
bringing  down  the  price.  Thus  in  general  the  volume  of  imports  and 
exports  does  not  for  a  very  lengthy  period  present  very  serious  dis- 
crepancies. It  may  then  be  safely  said  that  international  trade  is  a 
very  complicated  system  of  barter. 

137.     The  Favorable  Balance  of  Trade 

BY  THOMAS  MUN^ 

Although  a  Kingdom  may  be  enriched  by  gifts  received,  or  by 
purchases  taken  from  some  other  Nations,  yet  these  are  things  un- 
certain and  of  small  consideration  when  they  happen.  The  ordinary 
means  therefore  to  increase  our  wealth  and  treasure  is  by  Forraign 
Trade,  wherein  wee  must  ever  observe  this  rule;  to  sell  more  to 
strangers  yearly  than  wee  consume  of  theirs  in  value.  For  suppose 
that  when  this  Kingdom  is  plentifully  served  with  the  Cloth,  Lead, 
Tinn,  Iron,  Fish,  and  other  native  commodities,  we  doe  yearly  ex- 
port the  overplus  to  forraign  Countreys  to  the  value  of  twenty-two 
hundred  thousand  pounds  by  which  means  we  are  able  beyond  the 
Seas  to  buy  and  bring  in  forraign  wares  for  our  use  and  Consump- 
tions to  the  value  of  twenty  hundred  thousand  pounds :  By  this 
order  duly  kept  in  our  trading,  we  may  rest  assure^I  that  the  King- 
dom shall  be  enriched  yearly  two  hundred  thousand  pounds,  which 
must  be  brought  to  us  in  so  much  Treasure ;  because  that  part  of  our 
stock  which  is  not  returned  to  us  in  wares  must  necessarily  be 
brought  home  in  treasure. 

For  in  this  case  it  cometh  to  pass  in  the  stock  of  a  Kingdom,  as 
in  the  estate  of  a  private  man;  who  is  supposed  to  have  one  thou- 
sand pounds  yearly  revenue  and  two  thousand  pounds  ready  money 
in  his  Chest:  If  such  a  man  through  excess  shall  spend  one  thou- 
sand five  hundred  pounds  per  annum,  all  his  ready  money  will  be 
gone  in  four  years ;  and  in  like  time  his  said  money  will  be  doubled 

'Adapted  from  England's  Treasure  by  Forraign  Trade,  or  The  Ballance 
of  our  Forraign  Trade  Is  the  Rule  of  Our  Treasure,  chap,  ii  (1664). 


278  CURRENT  ECONOMIC  PROBLEMS 

if  he  take  a  Frugal  course  to  spend  but  five  hundred  pounds  per 
annum,  which  rule  never  faileth  likewise  in  the  Commonwealth. 


BY   CHARLEIS  W.   FAIRBANKS* 

The  history  of  our  foreign  trade  during  the  sixteen  years  fol- 
lowing the  Cleveland  administration  shows  that  our  commerce 
continually  expanded  under  the  protective  policy.  One  of  the  fine 
things  about  it  was  that  our  exports  far  exceeded  our  imports; 
that  is  to  say,  we  sold  abroad  more  than  we  bought  abroad,  and  as  a 
result  there  was  a  substantial  trade  balance  in  our  favor.  The 
excess  of  our  domestic  exports  over  imports  in  the  sixteen  years 
ending  March  i,  1913,  was  $7,348,942,251.  The  magnitude  of 
this  addition  to  our  national  wealth  may  be  more  fully  realized 
when  we  reflect  that  the  total  net  balance  to  our  credit  upon  our 
foreign  commerce  from  George  Washington's  first  term  to  Wil- 
liam McKinley's  first  term  was  less  than  $400,000,000. 

Our  free-trade  friends  seem  to  ignore  the  wisdom  of  keeping 
our  money  at  home  so  far  as  we  reasonably  can  b]^  buying  at  home. 
Whether  we  send  abroad  a  hundred  millions  of  dollars  more  or 
less  to  pay  for  commodities  produced  by  foreign  labor  is  a  matter 
of  slight  importance  to  them.  We  who  hold  to  the  protective  sys- 
tem conceive  it  to  be  sound  policy  to  patronize  our  home  producers 
where  possible,  and  keep  the  money  in  our  own  midst.  If  it  goes 
abroad,  it  is,  of  course,  withdrawn  from  our  pockets,  but  if  it 
remains  at  home  it  goes  into  the  circulation  of  our  own  trade  and 
our  countrymen — laborers  and  farmers,  merchants  and  manufac- 
turers— have  a  chance  to  get  it  sooner  or  later. 

138.    The  Mystery  of  the  Balance  of  Trade" 

BY  HARTLEY  WITHERS 

The  statistics  published  by  our  Board  of  Trade  show  that  for 
191 2,  which  is  a  typical  year,  our  net  imports,  including  bullion, 
amounted  to  £702,000,000,  while  our  exports,  including  bullion, 
reached  only  £552,000,000.  This  gives  a  net  excess  of  imports  over 
exports,  including  gold  shipped  both  ways,  of  approximately 
£150,000,000. 

*Adapted  from  an  address  entitled  "Let  Us  Now  Unite  in  the  Old  Faith," 
delivered  before  the  Indiana  Republican  State  Convention  at  Indianapolis, 
April  23,  1914. 

"Adapted  from  Money-Changing :  An  Introduction  to  Foreign  Exchange, 
51-63.  7&-82.     Published  by  E.  P.  Dutton  &  Co.   (1913). 


TEE  TARIFF  PROBLEM  279 

Now  this  huge  excess  of  imports,  which  is  much  bigger  in  the  i 
case  of  England  than  in  that  of  any  other  countr\',  is  often  very 
terrifying  to  people  who  have  not  thought  much  about  the  subject. 
It  is  commonly  called  an  adverse  balance  of  trade,  a  phrase  which 
has  an  uncomfortable  sound,  as  if  there  was  something  chronically 
rotten  in  the  state  of  our  commerce,  and  it  is  sometimes  used  as  a 
proof  that  other  countries  are  continually  pouring  goods  into  us  and 
taking  nothing  from  us  in  return,  and  that  this  is  a  state  of  things 
which  ought  immediately  to  be  stopped  in  the  interests  of  the  national 
welfare.  If  this  were  true,  it  would  seem,  on  consideration,  to  be 
rather  a  comfortable  state  of  affairs.  Any  individual  who  could 
arrange  his  commercial  relations  with  his  fellows  on  these  lines 
would  be  likely  to  wax  very  fat.  To  be  always  consuming  more  than 
he  produced  is  just  the  sort  of  life  that  would  have  been  thoroughly 
agreeable  to  the  Economic  Man.  With  a  nation,  likewise,  it  would 
seem  to  tend  to  the  enjoyment  of  plenty  with  little  effort. 

But,  in  fact,  these  things  do  not  happen.  The  other  countries  of 
the  world  have  not  conspired  together  to  kill  England  with  kindness 
and  give  us  £150,000,000  worth  of  goods  every  year  for  nothing. 
Goods  are  never  sent  anywhere  unless  there  is  a  reasonable  cer- 
tainty that  the  country  to  which  they  are  sent  will  be  able  to  pay 
for  them.  The  foreign  seller  of  goods  expects  to  be  paid  in  money 
of  his  own  country  by  selling  his  claim  through  the  machinery  of 
exchange.  But  if  the  importing  country  were  always  buying  more 
than  it  sold,  the  supply  of  claims  on  it  would  be  continually  greater 
than  the  demand  for  them  and  the  exchanges  would  be  steadily 
going  against  it,  and  it  would  either  have  to  export  gold  or  export 
promises  to  pay  as  long  as  it  could  finance  itself  on  Mr.  Micawber's 
principles. 

Now  it  is  certain  that  we  are  not  exporting  gold.  Year  in  and 
year  out  we  import  more  gold  than  we  export.  It  is  also  certain 
that  we  are  not  on  balance  exporting  promises  to  pay,  either  our 
own  or  other  people's.  If  we  were  doing  the  former,  we  should  be 
raising  loans  abroad  or  exporting  or  selling  our  securities  abroad, 
neither  of  which  things  we  are  doing.  If  we  were  exporting  other 
people's  promises  to  pay,  it  would  mean  that  we  were  selling  to 
foreigners  out  of  our  holdings  of  foreign  securities.  But  this  is 
not  happening  to  any  great  extent.  Nor  do  rates  of  exchange  move 
steadily  against  us,  as  they  must  if  we  were  really  leading  the 
profligate  life  of  commercial  dissipation  that  a  glance  at  the  figures 
might  lead  the  unwary  to  infer. 

It  is  thus  clear  that  the  big  gap  between  our  recorded  exports 
and  imports  of  goods  is  filled  by  unrecorded,  and  so  usually  called 


28o  CURRENT  ECONOMIC  PROBLEMS 

"invisible,"  exports  of  various  kinds  of  services,  and  that  there  is 
no  need  to  be  frightened  about  it.  England  does  about  one-half  of 
the  carrying  trade  of  the  world.  It  is  quite  evident  that  these 
carrying  services  do  not  themselves  pass  through  custom-houses,  and 
hence  are  "invisible."  And  it  is  evident  that  a  large  part  of  our 
surplus  of  imports  consists  of  payments  for  these  services  which  we 
are  performing  for  foreigners. 

In  addition  to  this  there  is  an  equally  elusive  factor  in  the  shape 
of  the  import  and  export  of  securities  and  interest  on  capital.  Almost 
every  country  in  the  world  is  a  lender  or  a  borrower.  The  borrower 
exports  securities,  or  promises  to  pay,  and  takes  in  return  the  goods 
or  services  it  requires.  Later  on,  when  interest  payments  fall  due, 
the  lender  has  coupons  to  export,  and  the  borrower  has  to  ship  goods 
to  meet  them.  When  Russia  raises  a  loan  in  France  it  exports  its 
bonds  or  promises  to  pay,  and  sells  them  to  thrifty  French  investors. 
Thereafter  French  investors  export  coupons  every  half-year  to 
Russia,  representing  claims  of  interest  due.  Thus  the  exportation 
of  securities  and  the  subsequent  exportation  of  coupons  by  the 
lender  both  tend  to  produce  the  same  result,  a  balance  of  visible 
imports. 

Consequently  we  find  that  this  adverse  balance — or  excess  of 
visible  imports — is  a  feature  in  the  trade  figures,  both  of  the  young 
and  go-ahead  countries  that  are  habitual  borrowers  and  are  always 
exporting  securities,  and  of  the  old  established  nations  that  have 
plenty  of  accumulated  capital  to  spare  and  have  placed  blocks  of  it 
abroad,  and  so  always  have  plenty  of  coupons  to  export.  In  both 
of  these  cases  there  is  an  invisible  export,  in  one  case  of  securities, 
in  the  other  of  coupons,  which  usually  has  to  be  met  by  visible 
imports  of  goods,  which  thus  create  a  so-called  adverse  trade  balance. 
The  so-called  favorable  trade  balance,  under  which  a  country  shows 
more  goods  going  out  than  coming  in,  is  chiefly  shown  by  those 
nations  which  have  reached  the  stage  of  being  in  a  position  to  pay 
interest  on  borrowed  capital  out  of  their  own  productions,  without 
having  to  borrow  more  from  their  creditors  in  order  to  meet  interest. 
The  United  States  is  typical  of  the  last  class,  Canada  and  England 
of  the  first.  The  actual  import  of  securities,  then,  should  tend  to 
produce  an  excess  of  exports,  and  an  export  of  coupons  to  secure 
a  surplus  of  imports. 

But  there  are  other  invisible  items  that  get  into  the  total.  Every 
American  who  goes  forth  with  his  Baedeker  to  widen  his  mental 
horizon  in  England  brings  with  him  a  supply  of  notes.  These  have 
been  bought  for  gold  in  New  York,  and  consist  of  claims  on  London 
merchants  created  by  the  importation  of  American  goods.     Conse- 


THE  TARIFF  PROBLEM  281 

quently  his  notes  pay  for  the  beefsteaks  which  he,  an  American, 
consumes  under  English  skies,  and  for  the  invisible  culture  which 
he  takes  back  to  his  native  land.  The  goods  which  he  consumes  in 
England  are  properly  to  be  regarded  as  English  exports. 

Another  streamlet  which  sometimes  swells  into  a  respectable 
torrent  is  made  by  the  many  drops  poured  in  by  poor  immigrants 
into  new  countries,  who  send  home  to  their  kinsmen  such  small  sums 
as  they  can  spare.  In  this  respect  Italy  is  believed  to  score  heavily. 
The  Italians  seem  to  take  with  them  the  home-grown  power  of 
living  largely  on  sunshine  and  good  humor,  and  the  sums  they  send 
home  are  an  important  cause  of  the  power  shown  by  Italy  to  main- 
tain a  so-called  adverse  trade  balance,  without  the  assistance  of 
investments  abroad  or  the  profits  of  a  big  carrying  trade.  Ireland 
is  another  country  that  takes  toll  of  the  rest  of  the  world  through 
the  filial  piety  of  her  sons  who  have  gone  abroad  to  seek  their  for- 
tunes in  lands  where  thews  and  sinews  find  a  better  market  than  at 
home. 

Another  class  of  emigrant  in  another  way  helps  the  older 
countries  by  causing  a  drain  on  the  country  of  its  origin.  This  class 
is  formed  by  the  wealthy  American  heiresses  who  find  English  and 
European  husbands  and  draw  year  by  year  large  sums  from  the 
United  States  in  the  shape  of  dowries,  so  that  this  item  in  the  trade 
balance  is  usually  called  the  "dowry  drain."  In  this  case  Europe  and 
England  can  balance  against  the  excess  of  imports  the  exportation 
of  conjugal  aflFection  and  social  prestige. 

The  presence  of  these  items,  which  escape  customs  statistics, 
shows  that  after  all  our  exports  and  our  imports  balance  each  other, 
and  that  there  is  no  real  balance  of  trade. 

139.    The  Reciprocal  Character  of  International  Trade* 

BV  FRRD  M.  TAYJ.GR 

Let  us  remember  the  fundamental  fact  that  settlement  between 
the  merchants  of  different  countries  is  made,  not  directly,  but 
through  the  assistance  of  exchange  dealers.  That  is,  the  claims  of 
each  community  on  other  communities  get  into  the  hands  ^of  ex- 
change dealers  who  settle  with  the  exchange  dealers  of  the  other 
communities.  This  means  that  there  is  developed  a  traffic  in  such 
claims ;  they  are  bought  and  sold  like  flour  or  iron.  Every  day  the 
prices  of  such  claims  per  unit  of  value  are  quoted  in  every  important 
newspaper.    Like  the  prices  of  other  things,  the  prices  of  exchange 

•Adapted  from  Some  Chapters  on  Money,  128-134.  Copyright  by  the 
author.     Published  by  George  Wahr   (1906). 


282  CURRENT  ECONOMIC  PROBLEMS 

rise  and  fall,  according  as  the  demand  rises  or  falls,  or  as  the  supply 
falls  or  rises.  Thus  exchange  on  London  ranges  from  about  $4,835 
per  English  sovereign  to  about  $4,895,  its  natural  par  being  $4.8665. 
If  we  are  selling  to  Europe  much  more  than  we  are  buying  from  her, 
so  that  claims  on  Europe  are  very  abundant  in  New  York,  London 
exchange  will  drop  to,  say,  $4.84  or  $4,835.  If,  on  the  other  hand,  we 
are  buying  much  more  than  we  are  selling,  so  that  the  demand  for 
claims  on  Europe  is  very  much  greater  than  the  supply,  the  price 
will  go  up  to,  say,  $4.89  or  $4,895. 

These  rises  and  falls  have  a  vital  relation  to  the  movement  of 
gold.  The  going  or  coming  of  gold  is  entirely  a  matter  of  price,  or 
rate  of  exchange.  If  the  rate  is  as  high  as  $4,895,  this  means  that 
there  is  on  the  market  practically  no  exchange  having  its  origin  in 
sale  by  us  to  the  rest  of  the  world;  so  that,  if  any  is  wanted,  it  must 
be  created  by  sending  gold.  This  rate  further  means  that  the  ex- 
change dealer  can  afford  to  send  gold  in  order  that  he  may  create 
exchange  which  he  can  sell  at  the  prevailing  price ;  for,  at  that  price, 
he  will  get  his  money  back  at  a  fair  profit.  Below  that  point,  how- 
ever, he  could  not  afford  to  send  gold  for  the  purpose,  since  the 
cost  added  to  the  natural  price  of  the  bullion  would  exceed  the  price 
obtained  from  the  exchange.  Accordingly,  if  anything  happens  when 
exchange  is  at  $4,895  to  make  exchange  abundant  and  bring  down 
the  price,  the  exporting  of  gold  for  exchange  purposes  will  at  once 
become  unprofitable,  and,  hence,  cease. 

But,  not  only  does  the  exporting  of  gold  depend  upon  the  rate 
of  exchange,  this  is  also  true  of  the  exporting  of  goods.  The  rate 
which  makes  it  profitable  to  export  gold  also  makes  it  more  than 
usually  easy  to  export  goods,  to  induce  foreigners  to  buy  goods. 
Thus,  suppose  you  are  a  wheat  exporter  and  hope  to  make  a 
10,000-bushel  sale  to  a  certain  Liverpool  miller.  If  you  do  so  you 
will  have  ready  for  sale  to  your  banker  a  bill  of  exchange  for,  say, 
£1,650.  Now  if  with  exchange  at  par  the  proceeds  of  this  draft, 
$8,028.90,  would  give  a  fair  profit  on  the  deal,  it  is  plain  that  with 
exchange  at  $4,895  they  would  give  you  an  additional  profit  of 
$47.85.  Plainly  then  you  could  afford  to  shade  the  price  a  little  in 
order  to  make  a  sale  more  likely,  i.e.,  you  could  offer  a  price  of 
80  cents  a  bushel  rather  than  one  of  80^  cents.  In  large  transac- 
tions of  this  sort,  a  difference  oi  Y^  oi  2i  cent,  or  even  J/^  of  a  cent, 
often  determines  for  or  against  a  sale.  It  follows,  therefore,  that 
high  rate  of  exchange  acts  as  a  stimulus  to  increase  exports. 

The  consequence  of  the  increase  in  exports,  due  to  the  high  rate 
of  exchange,  will  manifestly  put  some  foreigners  in  debt  to  us.  It 
will  therefore  increase  the  supply  of  claims  on  other  countries.    But 


THE  TARIFF  PROBLEM  2S3 

this  increase  will  tend  to  lower  the  rate  of  exchange  till  it  is  less  than 
$4,895.  But  this  is  the  rate  necessary  if  gold  is  to  be  exported. 
Hence  the  increase  in  exports  due  to  the  high  rate  of  exchange  will 
tend  to  stop  the  export  of  gold. 

The  chain  of  reasoning  is  now  complete.  Gold  cannot  go  until 
exchange  reaches  a  very  high  point.  But  a  high  point  for  ex- 
change stimulates  exports ;  the  increase  in  exports  presses  down  the 
rate  of  exchange;  and  the  lowered  rate  of  exchange  stops  the  out- 
flow of  gold. 

But  other  factors  are  working  to  the  same  effect.  A  persistent 
net  movement  of  money  tends  to  be  stopped  by  the  action  of  condi- 
tions which  its  own  continuance  establishes.  In  other  words,  a 
money -drain  is  self-corrective. 

Its  first  check  upon  itself  is  to  cause  an  inflow  of  floating  capital. 
The  process  is  as  follows :  First,  a  money  drain  from  any  country 
— which  will  of  course  be  a  drain  from  its  chief  commercial  and 
banking  center — tends  to  make  the  stock  of  money  in  that  centre 
relatively  small.  This  will  affect  especially  the  surplus  reserve  of 
the  banks,  since  it  is  from  this  reserve  that  money  for  export  will 
be  taken.  Second,  this  depletion  of  reserve  will  tend  to  raise  tempo- 
rarily the  rate  of  discount  on  short-time  loans.  Third,  the  high  rate 
of  discount  thus  established  will  make  the  country  a  desirable  market 
for  lenders,  and  so  will  tend  to  draw  in  the  floating  capital  of  neigh- 
boring countries.  But,  finally,  as  such  a  movement  must  in  the 
nature  of  the  case  be  a  rapid  one,  it  will  almost  necessarily  stop  the 
gold  drain.  In  ordinary  cases,  this  process  is  adequate  to  stop  an 
excessive  drain.  But,  if  it  does  not  prove  to  be  so,  a  new  and 
slightly  different  series  of  reactions  follow  and  usually  effect  the 
desired  result. 

Under  modern  conditions  there  are  many  securities  having  an 
international  character.  The  prices  of  such  securities  are  soon 
affected  by  the  causes  which  lead  to  an  inflow  of  floating  capital  and 
so  to  the  inflow  of  money.  That  is,  when  the  bank  reserves  of  New 
York  become  scanty  and  the  rate  of  discount  rises,  it  quite  probably 
leads  to  a  fall  in  the  prices  of  securities.  For  a  large  part  of  the 
buying  of  securities  is  based  on  borrowed  capital ;  and,  therefore,  if 
money  is  hard  to  get,  the  inclination  of  people  to  buy  the  securities 
is  diminished.  In  consequence  the  demand  falls  off,  perhaps  the 
supply  is  increased,  and  inevitably  their  prices  will  fall.  But  if  the 
prices  of  securities  fall,  foreigners  will  be  encouraged  to  buy  them. 
In  turn  this  buying  will  give  New  York  a  supply  of  exchange  on 
Europe.  As  a  result  the  rate  of  exchange  will  fall  below  the  gold 
point,  thus  making  the  export  of  gold  no  longer  profitable.  There- 
upon the  drain  will  cease. 


284  CURRENT  ECONOMIC  PROBLEMS 

There  is  yet  another  chain  of  causation  which  comes  into  opera- 
tion, probably  a  Httle  later  than  the  others.  The  same  high  rate  of 
discount,  if  long  continued,  leads  to  a  fall  in  the  price  of  the  great 
export  staples,  such  as  cotton  and  wheat,  which  are  speculated  in 
like  securities,  and  this  fall  in  price  leads  to  increased  buying  by 
foreigners,  which  makes  foreign  exchange  abundant,  which  in  turn, 
lowers  the  rate  and  checks  the  outflow  of  money. 

Finally,  if  the  outflow  could  go  on  long  enough  to  produce  a 
scarcity  of  money  in  the  country  as  a  whole  there  would  result  a 
general  fall  in  prices  which  would  stimulate  foreign  buying  all  along 
the  line,  until  the  direction  of  the  money  movement  was  completely 
reversed.  As  a  consequence  of  the  action  of  these  several  checks 
there  is  never  any  danger  that  an  export  of  money  will  go  on  until 
a  country  is  denuded  of  its  precious  metal.  This  is  equivalent  to 
saying  that  international  debts  are  usually  paid  in  goods,  or  that 
international  trade  is  reciprocal. 

C.     THE  DEMAND  FOR  LOCAL  PROTECTION 

140.     Keeping  Trade  at  Home^ 

"A  dollar  spent  in  Auburn  gives  you  another  chance  at  it ;  but, 
if  it  is  spent  out  of  town,  it's  'Good-bye  Mary.'  " 

"Down  with  the  parcels  post.  No  more  diabolical  device  was 
ever  perfected  by  the  big  cities  for  stripping  the  small  towns  and 
country  districts  of  all  their  surplus  cash.  Let  the  rich  mail-order 
houses  wax  fat  with  the  dollars  that  are  the  property  of  local  mer- 
chants." 

"Everything  bought  from  the  city  takes  just  so  much  money  out 
of  town." 

"The  summer  boarders  are  a  great  blessing  to  our  little  village; 
they  put  into  circulation  a  lot  of  money  which  means  at  least  tempo- 
rary prosperity." 

"If  I  were  mayor,  and  had  my  way,  I  would  place  a  fine  of  one 
hundred  dollars  on  every  man  who  ordered  goods  from  a  mail- 
order house." 

"The  individual  can  get  rich  only  by  selling  more  than  he  buys. 
Likewise  a  community  can  prosper  only  by  selling  to  other  communi- 
ties more  than  it  buys  from  them." 

"Brethren,  let  me  call  your  attention  to  the  fact  that  Brother 
Hiram  Johnson,  who,  this  week,  is  opening  a  new  grocery  store  on 

'It  seems  unnecessary  to  give  a  specific  reference  to  the  source  of  each 
of  the  excerpts  given  below.  The  reader  by  a  little  attention  to  local  papers 
can  easily  duplicate  it.  The  editor  is  indebted  to  Taylor,  Principles  of 
Economics,  for  several  of  these  excerpts. 


THE  TARIFF  PROBLEM  285 

Main  Street,  is  a  member  of  this  church.  If  you  patronize  him,  you 
will  not  only  contribute  to  the  prosperity  of  an  excellent  grocer,  but 
you  will  be  helping  a  fellow  Christian  and  Methodist." 

"The  European  war  will  in  a  way,  too  often  overlooked,  con- 
tribute vastly  to  the  prosperity  of  the  Pacific  Coast.  American^  an- 
nually have  been  spending  more  than  $200,000,000  in  foreign  travel. 
No  sane  man  can  for  a  moment  doubt  that  practically  every  dollar  of 
this  is  lost  to  the  home  circulation.  Now  it  will  be  spent  in  travel 
to  the  Pacific  Coast.  California  will  get  the  largest  share  of  it. 
This  money  will  spell  prosperity  for  every  one  of  the  state's  indus- 
tries. But,  we  must  remember  the  duty  we  owe  our  state.  We  can 
profit  by  this  increase  in  wealth  only  if  we  keep  clearly  in  mind  the 
precept  that  it  must  be  spent  for  things  produced  at  home.  Let  us 
see  to  it  that  the  dollars  thus  given  us  do  not  find  their  way  out  of 
the  state." 

"When  I  came  to  Marblehead  they  had  their  houses  built  by 
country  workmen  and  their  clothes  made  out  of  town,  and  supplied 
themselves  with  beef  and  pork  from  Boston,  which  drained  the  town 
of  its  money." 

"The  annual  influx  of  students  and  other  outsiders  into  our 
fruit  belt  to  engage  in  fruit-picking  and  packing  is  an  abuse  that 
should  be  stopped  at  once.  These  people  consume  very  little,  saving 
their  money  to  take  back  to  Ann  Arbor,  Madison,  Champaign,  and 
other  places  from  which  they  come.  Thus,  while  making  large  sums 
oflf  us,  they  give  little  or  nothing  in  support  of  our  industries." 

"The  county  commissioners  should  be  promptly  impeached  and 
removed  from  office  for  their  action  of  last  Monday.  We  under- 
stand that  the  contract  for  the  building  of  the  new  courthouse  was 
let  to  the  Knoxville  firm  only  because  their  bid  was  $1,800  under 
that  of  our  fellow-citizen  James  R.  Robertson.  Robertson,  as  we  are 
all  aware,  is  an  expert  at  this  line  of  work,  and  was  well  equipped 
to  do  a  handsome  job.  The  only  excuse  which  the  commissioners 
give  is  the  $1,800.  But,  against  this  must  be  set  down  the  $32,000 
which  will  be  paid  to  the  Knoxville  gang.  Think  of  it!  Sending 
$32,000  out  of  town  to  save  a  paltry  $1,800." 

"The  Gazette  has  always  been  outspoken  in  favor  of  education. 
Our  stand  in  favor  of  university,  college,  and  school  cannot  be  ques- 
tioned. We  do  not  wish  to  question  the  wisdom  of  our  fellow- 
citizens  w'ho  are  sending  their  children  away  to  school.  But  we  do 
wish  to  remind  them  of  a  duty  which  they  owe  it  to  the  town  not 
to  neglect.  They  should  see  to  it  that  their  sons  and  daughters  are 
supplied  with  clothes  and  all  other  necessary  articles  before  they 
leave  home  for  their  schools.  Our  citizens  owe  nothing  to  the  mer- 
chants of  the  communities  in  which  these  colleges  are  located.    But 


286  CURRENT  ECONOMIC  PROBLEMS 

they  do  owe  a  debt  to  the  town  which  gives  them  homes.  And  they 
should  see  to  it  that  the  money  sperlt  for  necessary  articles  is  kept 
here  as  far  as  possible." 

"  'Now  look  here,  Doc/  said  the  dollar  to  the  dentist,  'if  you'll 
only  let  me  stay  in  this  town,  and  won't  send  me  to  Roars,  Sawbuck 
&  Co.'s  in  Chicago  for  that  shaving  mug,  I'll  circulate  around  and 
do  you  lots  of  good.  You  buy  a  big  beefsteak  with  me,  and  the 
butcher  will  buy  groceries,  and  the  grocer  will  buy  dry  goods,  and 
the  dry  goods  merchant  will  pay  his  doctor's  bill  with  me,  and  the 
doctor  will  give  me  to  the  farmer  for  oats  with  which  to  feed 
his  horse,  and  the  farmer  will  buy  fresh  beef  from  the  butcher,  and 
the  butcher  will  come  around  to  you  to  get  his  tooth  mended.  In  the 
long  run  you  see  I  will  be  more  useful  to  you  here  at  home  than 
if  you  send  me  away  forever.'  " 

"The  recent  cold  spell,  which  caused  a  large  number  of  water 
pipes  to  burst,  has  been  a  bonanza  for  business.  Few  things  in  the 
last  year  have  caused  so  many  people  to  dig  down  into  their  jeans 
and  cough  up  the  cartwheels  that  spell  prosperity." 

141.     Remember  Colorado^ 

The  people  of  Colorado  are  going  to  build  a  wall  around  the  state 
and  close  the  gates  this  year  so  that  not  one  dollar  of  the  $200,- 
000,000  which  will  be  received  from  our  crops  shall  go  outside  the 
border  line.  The  wall  is  to  be  built  of  a  solid  unflinching  sentiment 
in  favor  of  spending  this  $200,000,000  at  home  and  making  it  work 
for  our  own  prosperity. 

The  members  of  the  Denver  Chamber  of  Commerce  have  taken 
their  coats  off  in  behalf  of  the  Times' s  movement  and  will  ask  every 
commercial  organization  in  the  state  to  assist.  The  newspapers  of 
the  state  see  in  the  movement  a  chance  to  keep  the  wheels  of  in- 
dustry humming  in  every  city,  town,  and  village  in  Colorado,  and 
will  join  in  the  campaign. 

"Colorado  has  a  $200,000,000  crop  yield  this  year  and  this  $200, 
000,000  is  going  to  be  spent  among  the  merchants,  the  tradesmen, 
the  manufacturers,  and  the  workingmen  of  our  own  state."  The 
above  is  the  only  platform  in  this  campaign  in  behalf  of  a  prosperous 
state.  Last  year  we  sent  some  $20,000,000  to  eastern  mail-order 
houses  alone.  -Half  of  the  value  of  our  crops  went  outside  of  the  state 
to  eastern  manufacturers  and  merchants  whose  only  interest  in 
Colorado  is  to  get  all  the  money  possible  out  of  its  people.  It  is  to 
keep  this  money  in  the  state  and  make  it  work  and  keep  on  working 
for  our  own  people  that  this  campaign  has  been  organized. 

'Adapted  from  a  leading  article  in  the  Denver  Times,  of  July  31,  1912. 


THE  TARIFF  PROBLEM  287 

Do  you  know,  Mr.  Citizen  and  Mrs.  Housewife,  just  what  it 
means  to  produce  a  $200,000,000  harvest  in  Colorado  and  keep  the 
mcney  at  home  ?  It  means  prosperity  for  your  grocer,  your  butcher, 
and  your  dry  goods  merchant.  It  means  banks  full  of  money  with 
which  business  can  be  conducted.  It  means  passenger  trains  full  of 
people  instead  of  empty  coaches.  It  means  that  the  laboring  men 
will  have  jobs  and  steady  salaries  and  happy  homes,  well-fed  chil- 
dren and  smiling  wives. 

Every  man,  woman,  and  child  in  Colorado  has  a  part  to  perform 
in  this  great  work.  Buy  your  shoes,  hats,  cldWiing,  and  underwear 
from  your  local  merchants.  Ask  them  to  give  you  Colorado-made 
products  whenever  possible.  Spend  your  money  for  Colorado-made 
agricultural  implements,  wagons,  carriages,  and  automobiles.  Keep 
that  $200,000,000  at  home!  Be  selfish — in  the  sense  that  you  are 
part  of  the  state — for  once  in  your  life!  Don't  let  the  East  feed  on 
the  grain  while  we  eat  the  husks.  Don't  let  the  best  of  that  $200,- 
000,000  crop  get  away  from  Colorado. 

This  campaign  is  for  a  richer,  better,  and  greater  state.  Now 
is  the  time  to  begin  before  the  stream  of  wealth  has  swept  beyond 
our  borders.  Preach  this  gospel  of  Colorado  for  Colorado !  Organ- 
ize local  clubs,  wear  buttons  showing  your  sentiment,  and  fight 
for  your  state.  If  a  half  or  third  of  this  $200,000,000  is  allowed  to 
go  East  this  year  it  will  work  for  the  prosperity  of  other  communi- 
ties and  leave  Colorado  in  a  position  where  it  will  have  to  begin  all 
over  again.  Now  that  we  have  it  in  sight,  let's  hold  on  to  prosperity 
in  the  way  that  will  count. 

142.    The  Seen  and  the  Unseen* 

BY  FREDERIC  BASTLA.T 

Have  you  ever  had  occasion  to  witness  the  fury  of  the  honest 
burgess,  Jacques  Bonhomme,  when  his  scapegrace  son  has  broken 
a  pane  of  glass?  If  you  have,  you  cannot  fail  to  have  observed  that 
all  the  bystanders,  were  there  thirty  of  them,  lay  their  heads  together 
to  offer  the  unfortunate  proprietor  this  never-failing  consolation, 
that  there  is  good  in  every  misfortune,  and  that  such  accidents  give 
a  fillip  to  trade.  Everj-body  must  live.  If  no  windows  were  broken, 
what  would  become  of  the  glaziers?  Now,  this  formula  of  condo- 
lence contains  a  theory  which  it  is  proper  to  lay  hold  of  in  this  very 

•Adapted  from  the  essay  The  Seen  and  the  Unseen,  quoted  in  Walker, 
Political  Economy,  321-323.  (1850). 


288  CURRENT  ECONOMIC  PROBLEMS 

simple  case,  because  it  is  exactly  the  same  theory  which  unfortu- 
nately governs  the  greater  part  of  our  economic  institutions. 

Assuming  that  it  becomes  necessary  to  expend  six  francs  in 
repairing  the  damage,  if  you  mean  to  say  that  the  accident  brings 
in  six  francs  to  the  glazier,  and  to  that  extent  encourages  his  trade, 
I  grant  it  fairly  and  frankly,  and  admit  that  you  reason  justly. 

The  glazier  arrives,  does  his  work,  pockets  the  money,  rubs 
his  hands,  and  blesses  the  scapegrace  son.    That  is  what  we  see. 

But,  if  by  way  of  deduction,  you  come  to  conclude,  as  is  too  often 
done,  that  it  is  a  goolt thing  to  break  windows — that  it  makes  money 
circulate — and  that  encouragement  to  trade  in  general  is  the  result, 
I  am  obliged  to  cry.  Halt !  Your  theory  stops  at  what  you  see,  and 
takes  no  account  of  what  ive  don't  see. 

We  don't  see  that  since  our  burgess  has  been  obliged  to  spend  his 
six  francs  on  one  thing,  he  can  no  longer  spend  them  on  another. 

We  don't  see  that  if  he  had  not  this  pane  to  replace,  he  would 
have  replaced,  for  example,  his  shoes,  which  are  down  to  the  heels ; 
or  have  placed  a  new  book  on  his  shelf.  In  short,  he  would  have  em- 
ployed his  six  francs  in  a  way  in  which  he  cannot  now  employ  them. 
Let  us  see,  then,  how  the  account  stands  with  trade  in  general.  The 
pane  being  broken,  the  glazier's  trade  is  benefited  to  the  extent  of  six 
francs.  That  is  what  we  see. 

If  the  pane  had  not  been  broken,  the  shoemaker's  or  some  other 
trade  would  have  been  encouraged  to  the  same  extent  of  six  francs. 
This  is  what  we  don't  see.  And  if  we  take  into  account  what  we 
don't  see,  which  is  a  negative  fact,. as  well  as  what  we  do  see,  which 
is  a  positive  fact,  we  shall  discover  that  trade  in  general,  or  the  aggre- 
gate of  national  industry,  has  no  interest,  one  way  or  another, 
whether  windows  are  broken  or  not. 

Let  us  see  again  how  the  account  stands  with  Jacques  Bon- 
homme.  On  the  last  hypothesis,  that  of  the  pane  being  broken,  he 
spends  six  francs,  and  gets  neither  more  nor  less  than  he  had  before, 
namely,  the  use  of  a  pane  of  glass.  On  the  other  hypothesis,  namely, 
that  the  accident  had  not  happened,  he  would  have  expended  six 
francs  on  shoes,  and  would  have  had  the  enjoyment  both  of  the 
shoes  and  the  pane  of  glass. 

Now,  as  the  good  burgess,  Jacques  Bonhomme,  constitutes  a 
fraction  of  society  at  large,  we  are  forced  to  conclude  that  society, 
taken  in  the  aggregate,  and  after  all  accounts  of  labor  and  enjoyment 
have  been  squared,  has  lost  the  value  of  the  pane  of  glass  which  has 
been  broken. 


THE  TARIFF  PROBLEM  289 

D.    THE  PERENNIAL  ARGUMENT  FOR  RESTRICTION 
143.     Gold  and  Wealth^" 

BY  MARTIN  LUTHER 

Gold  has  brought  us  Germans  to  that  pitch  that  we  must  needs 
scatter  our  gold  and  silver  in  foreign  lands,  and  make  all  the  world 
rich  and  ourselves  remain  beggars.  England  should  indeed  have 
less  gold,  if  Germany  left  her  her  cloth ;  and  the  king  of  Portugal  also 
would  have  less  if  we  left  him  his  spices.  Reckon  thou  how  much 
money  is  taken  out  of  German  land  without  need  or  cause  in  one 
Frankfort  fair,  then  wilt  thou  wonder  how  it  comes  that  there  is  a 
penny  left  in  Germany.  Frankfort  is  the  silver-and-gold  hole  through 
which  everything  which  sprouts  and  grows  among  us,  or  is  coined 
and  stamped,  runs  out  of  German  lands.  If  this  hole  were  stopped, 
we  would  perchance  not  hear  the  complaint  how  on  all  hands  there 
is  naught  but  debts  and  no  money,  and  all  provinces  and  cities  are 
burdened  and  exhausted  by  interest-paying. 

144.     What  the  State  Owes  to  Industry^* 

BY  GEORGE  B.  CURTISS 

History  teaches  that  no  nation  of  modern  times  has  established 
the  industrial  arts  and  reared  a  great  manufacturing  structure  under 
international  competition.  Our  manufacturing  industries  as  well  as 
our  wondrous  industrial  and  commercial  civilization  did  not  come 
out  of  chaos ;  they  did  not  spring  into  existence  and  grow  by  them- 
selves; they  have  been  established  and  reared  under  that  system 
of  protection  which  was  founded  and  designed  as  the  architect  plans 
a  building  or  an  engineer  lays  out  a  bridge.  We  have  had  no  manu- 
factures enumerated  in  our  census  returns  which  were  not  named  in 
our  tariff  schedules.  Our  success  has  not  been  achieved  without 
a  constant  unremitting  struggle.  We  have  gradually  grown  and 
expanded  our  industries  by  increasing  tariff  duties  and  perfecting 
our  protective  system,  and  every  time  we  have  reduced  duties  to 
the  competitive  point  our  industries  have  declined  and  we  have  gone 
backward.  The  importers  and  manufacturers  of  the  Old  World 
even  under  our  protective  system,  have  been  a  constant  menace  to 
our  growth.     The  great  American  industrial   fortress,   the  home 

^"Adapted  from  the  address  on  "Trade  and  Usury,"  in  the  Open  Court, 
XI,  18.    Translated  by  W.  H.  Carruth.    Copyright.     (1524.) 

^'Adapted  from  a  letter  written  January  7,  1914,  accepting  an  invitation 
to  attend  the  annual  meeting  of  the  American  Protective  Tariflf  League. 
Published  in  the  American  Economist,  LIII,  26-27. 


290  CURRENT  ECONOMIC  PROBLEMS 

market,  has  ever  been  under  a  constant  siege.  The  importers  and 
foreign  manufacturers  have  scaled  our  tariff  walls  fraudulently  to 
supply  our  people  with  the  wares  made  by  the  poorly  paid  labor 
of  the  Old  World.  Congress  has  finally  run  up  the  white  flag  and 
surrendered  the  fortress ;  it  has  given  to  our  industrial  enemies  the 
freedom  of  our  cities.  In  the  great  war  for  industrial  and  commer- 
cial supremacy  which  has  raged  so  long  in  the  world  of  business  and 
of  commerce,  our  President  has  finally  intervened  in  behalf  of  our 
enemies,  and  the  invading  army  of  the  Old  World  is  moving  forward 
to  subdue  and  possess  our  market. 

A  hundred  million  of  people  in  the  United  States,  occupying  a 
plane  of  wages  and  industrial  civilization  150  per  cent  higher  than 
the  wage  scale  and  mode  of  living  of  three  hundred  millions  of  people 
in  Europe,  by  the  irresistible  force  of  international  competition,  are 
to  be  leveled  down  to  the  plane  of  the  Old  World.  The  American 
market,  the  greatest  and  most  profitable  in  the  world,  is  offered  as 
the  price  to' be  fought  for  in  a  warfare  in  which  the  competitors  have 
the  unquestionable  advantages  of  millions  of  experienced,  efificient, 
and  well-disciplined  labor,  working  at  low  wages.  The  final  outcome 
of  such  a  struggle  does  not  admit  of  difference  of  opinion.  The 
economists  and  statesmen  of  the  world,  of  all  schools  of  political 
economy,  agree  that  the  nation  of  the  higher  wage  scale  and  more 
expensive  mode  of  living  will  be  the  weaker  party  in  the  contest  for 
supremacy,  and  must  ultimately  succumb  to  its  stronger  rival. 

Wages,  prices,  and  mode  of  living  must  yield  and  succumb  to 
the  leveling  process  of  world-wide  competition.  There  is  no  friend- 
ship, patriotism,  or  brotherly  love  in  this  contest.  The  world  of 
business  is  no  less  selfish  and  no  more  altruistic  than  before.  Amer- 
ican consumers  will  not  buy  one  cent's  worth  of  goods  simply  because 
they  are  made  in  American  mills  by  American  labor;  they  will 
patronize  the  foreigner  if  they  can  save  so  much  as  a  penny  by  doing 
it.  Our  Presidents,  even,  have  changed.  We  have  no  Washington 
who  took  pride  in  being  inaugurated  in  a  suit  of  clothes  made  by 
the  hands  of  American  labor;  nor  a  Jefferson,  who  boasted  of 
"purchasing  nothing  foreign  where  an  equivalent  of  domestic  fabric 
can  be  obtained." 

The  leveling  process  has  already  begun.  The  law  of  gravitation 
of  indu.stries  to  a  common  world-wide  level  under  competition  op- 
erates in  the  world  of  business  the  same  as  the  law  of  gravitation 
operates  in  the  physical  world.  The  new  law  has  taken  effect.  Three 
hundred  millions  of  energetic,  ambitious,  selfish,  devouring  money- 
getters  of  the  Old  World  will  seize  upon  every  advantage  which  has 
been  devised  for  them.    The  fight  is  on.    It  is  a  struggle  for  the 


THE  TARIFF  PROBLEM  291 

almighty  dollar.  The  sooner  the  American  people  wake  up  and 
understand  the  true  import  and  logical  effect  of  what  has  been  done, 
the  sooner  this  stupendous  political  blunder  will  be  corrected. 

145.     The  Production  of  Prosperity^^ 

BY  DANIEL  DEFOE 

Trade  encourages  manufacture,  prompts  invention,  employs 
people,  increases  labor,  and  pays  wages :  As  the  people  are  employed, 
they  are  paid,  and  by  that  pay  are  fed,  clothed,  kept  in  heart,  and 
kept  together ;  that  is,  kept  at  home,  kept  from  wandering  in  foreign 
countries  to  seek  business,  for  where  the  employment  is,  the  people 
will  be. 

This  keeping  the  people  together  is  indeed  the  sum  of  the  whole 
matter,  for  as  they  are  kept  together,  they  multiply  together;  and 
the  numbers,  which  by  the  way  axe  the  wealth  and  strength  of  the 
nation,  increase. 

As  the  numbers  of  the  people  increase,  the  consumption  of 
provisions  increases;  as  the  consumption  increases,  the  rate  of 
value  will  rise  at  market ;  and  as  the  rate  of  provisions  rises,  the  rents 
of  land  rise :  So  the  gentlemen  are  with  the  first  to  feel  the  benefit 
of  trade,  by  the  addition  to  their  estates. 

As  the  consumption  of  provisions  increases,  more  lands  are  cul- 
tivated ;  waste  grounds  are  inclosed,  woods  are  grubbed  up,  forests 
and  common  lands  are  tilled,  and  improved;  by  this  more  farmers 
are  brought  together,  more  farmhouses  and  cottages  are  built,  and 
more  trades  are  called  upon  to  supply  the  necessary  demands  of 
husbandry.  In  a  word,  as  land  is  employed,  the  people  increase,  of 
course,  and  thus  trade  sets  all  the  wheels  of  improvement  in  motion ; 
for  from  the  original  of  business  to  this  day  it  appears,  that  the 
prosperity  of  a  nation  rises  and  falls,  just  as  trade  is  supported  or 
becomes  decayed. 

As  trade  prospers,  manufactures  increase;  as  the  demand  is 
greater  or  smaller,  so  also  is  the  quantity  made ;  and  so  the  wages  of 
the  poor,  the  rate  of  provisions,  and  the  rents  and  value  of  the  lands 
rise  or  fall,  as  I  said  before.  And  here  the  very  power  and  strength 
of  the  nation  is  concerned  also,  for  as  the  value  of  the  lands  rises 
or  falls,  the  taxes  rise  and  fall  in  proportion. 

Trade  furnishes  money,  money  pays  taxes,  and  taxes  raise 
armies ;  and  so  it  may  truly  be  said  of  trade,  that  it  makes  princes 

"Adapted  from  A  Plan  of  the  English  Commerce,  8-10,  33-34,  in  A 
Select  Collection  of  Scarce  and  Valuable  Tracts  on  Commerce,  edited  by 
J.  R.  McCuUoch  (1730). 


292  CURRENT  ECONOMIC  PROBLEMS 

powerful,  nations  valiant,  and  the  most  effeminate  people  that  can- 
not fight  for  themselves,  if  they  have  but  money,  and  can  hire  other 
people  to  fight  for  them,  become  as  formidable  as  any  of  their 
neighbors. 

Seeing  trade  then  is  the  fund  of  wealth  and  power,  we  cannot 
wonder  that  we  see  the  wisest  princes  and  states  anxious  and  con- 
cerned for  the  increase  of  the  commerce  and  trade  of  their  subjects, 

*  and  of  the  growth  of  the  country,  anxious  to  propagate  the  sale  of 
such  goods  as  are  the  manufacture  of  their  own  people;  especially 
such  as  keep  the  money  of  their  dominions  at  home,  and  on  the  con- 
trary, for  prohibiting  the  exportation  from  abroad,  of  such  things 
as  are  the  products  of  other  countries,  and  of  the  labor  of  other 
people,  as  which  carry  money  back  in  return. 

Nor  can  we  wonder  that  we  see  such  princes  and  states  endeavor- 
ing to  set  up  such  manufactures  in  their  own  countries,  which  they 
see  are  successfully  and  profitably  carried  on  by  their  neighbors,  and 

•  to  endeavor  to  procure  the  materials  for  setting  up  those  manufac- 
tures by  all  just  and  profitable  methods  from  other  countries. 

146.     The  Ten  Commandments  of  National  Commerce" 

1.  Never  lose  sight  of  the  interests  of  your  compatriots  or  of 
the  fatherland. 

2.  Do  not  forget  that  when  you  buy  a  foreign  product,  no  mat- 
ter if  it  is  only  a  cent's  worth,  you  diminish  the  fatherland's  wealth 
by  so  much. 

3.  Your  money  should  profit  only  German  merchants  and 
workmen. 

4.  Do  not  profane  German  soil,  a  German  house,  or  a  German 
workshop  by  using  foreign  machines  and  tools. 

5.  Never  allow  to  be  served  at  your  table  foreign  fruits  and 
meat,  thus  wronging  German  growers,  and,  moreover,  compromising 
your  health  because  foreign  meats  are  not  inspected  by  German 
sanitary  police. 

6.  Write  on  German  paper  with  a  German  pen  and  dry  the  ink 
with  German  blotters. 

7.  You  should  be  clothed  only  with  German  goods  and  should 
wear  only  German  hats. 

8.  German  flour,  German  fruits,  and  German  beer  alone  make 
German  strength. 

9.  If  you  do  not  like  the  German  malted  coffee,  drink  coffee 
from  the  German  colonies.    If  yon  prefer  chocolates  or  cocoa  for 

"Adaoted  from  a  circular  widely  circulated  in  Germany  in   1910. 


THE  TARIFF  PROBLEM  293 

the  children,  have  a  care  that  the  chocolate  and  cocoa  are  of  exclu- 
sively German  production. 

10.  Do  not  let  foreign  boasters  divert  you  from  these  sage 
precepts.  Be  convinced,  whatever  you  may  hear,  that  the  best 
products,  which  are  alone  worthy  of  a  German  citizen,  are  German 
products. 

147.     The  Test  of  Faith" 

BY  ROSWEI,!,  A.  BENEDICT 

Q.     What  is  Protectionf 

A.  It  is  a  principle.  It  holds  that  home  producers  alone  make, 
and  therefore  alone  own,  the  home  market. 

Q.     What  is  Free  Trade? 

A.  Also  a  principle.  It  holds  that  producers  abroad  should  be 
allowed  to  compete  for  the  home  market. 

Q.     Who  are  the  Protectionists? 

A.     Home  producers  standing  by  their  title  to  the  home  market. 

Q.     Who  are  the  Free  Traders? 

A.  Importers  and  their  pals  stealing  the  home  market  from  its 
lawful  owners. 

Q.  Wherein  does  the  work  of  the  Protectionists  and  the  Free 
Traders  differ? 

A.  The  Protectionists  make  and  defend  while  the  Free  Traders 
attack  and  destroy  home  civilization. 

Q.     How  do  Free  Traders  destroy  home  civilization? 

A.  They  destroy  home  production  which  employs  the  people, 
and  so  substitute  violence  for  industry  as  a  breadwinning  craft. 

Q.  After  all,  are  not  those  who  pass  Free  Trade  laws  merely 
scholars,  high  minded  and  pure,  moved  solely  by  pride  in  the  com- 
mon weal? 

A.  No.  It  is  not  pride  but  price  that  moves  them  to  sell  the 
home  market  to  the  Market  Robber.  Under  whatever  color  or  cover, 
it  is  still  the  Market  Robber's  silver  paid  to  these,  our  Judases,  by 
which  we  are  betrayed. 

Q.     Who  is  the  Market  Robber? 

A.  The  importer  who  robs  it  of  its  power  to  employ  home  pro- 
ducers in  the  market  made  and  owned  by  them. 

Q.     What  is  the  secret  of  the  Market  Robber's  power? 

A.  Market-robbing  booty.  His  competitor,  the  home  producer, 
is  lucky  to  get  6  per  cent  a  year  from  his  mine,  forest,  farm,  factory, 
or  fishery,  while  the  Market  Robber's  booty  may  be  100  per  cent, 

"Adapted  from  "A  Tariff  Catechism,"  in  the  American  Economist,  III. 
62    (1914). 


294  CURRENT  ECONOMIC  PROBLEMS 

big  enough  to  bribe  his  way  into  any  market. 

Q.     Why  did  the  Market  Robber  fight  so  hard  to  break  into  our 
market? 

A.     To  steal  billions  in  wages  from  our  home  laborers. 


148.     The  Universal  Fruits  of  Free  Trade" 

BY  ANDREW  YARRINGTON,  GENT 

1 .  Consider  what  quantities  of  fine  Linnens  are  made  in  Holland 
and  Flanders,  and  here  worn  and  consumed,  and  how  many  hands  it 
imploys  in  work  to  manufacture  it,  and  the  great  benefit  the  Dutch 
gain,  being  the  great  Masters  of  that  Trade? 

2.  Consider,  that  if  these  fine  clothes  were  made  here,  how  it 
would  imploy  the  Poor,  raise  the  price  of  Land,  and  keep  our  Moneys 
at  home ;  for  the  Dutch  take  nothing  from  us  in  exchange,  wherein 
the  Benefit  is  in  any  way  considerable  to  the  Publick. 

3.  Consider,  of  course,  all  Linnens  bought  from  France,  as  Can- 
vases, Lockrums,  and  great  quantities  of  coarse  Clothes,  which  have 
of  late  years  so  crowded  upon  us,  that  it  hath  almost  laid  aside  the 
making  of  Linnen  Cloth  in  England,  and  thereby  the  people  are  un- 
imployed,  and  the  Land  lyeth  idle  and  waste. 

4.  Consider,  the  French  take  nothing  of  any  value  from  us,  but 
it  is  ready  money  for  their  Linnens ;  so  we  keep  their  people  at  work, 
and  send  them  our  moneys  to  pay  them  for  it,  and  our  poor  are 
unimploy'd :  But  if  a  tax  were  laid  upon  their  coarse  Linnen  Clothes, 
then  what  is  brought  out  of  France  into  England  would  be  made  here 
of  our  own  growth,  to  the  Nation's  great  enriching. 

5.  Consider  the  Twine  and  Yarn  ready  wrought  and  brought 
out  of  the  East-Country  to  make  Sail-Cloth  and  Cordage,  which  hath 
taken  off  the  labour  of  a  multitude  of  people  in  Suffolk,  and  there- 
abouts, and  hath  so  lessened  that  Trade,  that  it  is  almost  lost :  But 
if  a  tax  were  laid  upon  the  Threds  brought  over  ready  wrought, 
then  the  Labour  of  all  such  things  would  be  here  to  supply  our  Poor 
at  work,  and  raise  the  price  of  our  Lands. 

6.  Consider  what  vast  quantities  of  narrow  coarse  Clothes  come 
out  of  Germany,  and  here  vented  and  worn ;  the  cheapness  whereof 
hath  beaten  out  the  Linnen  Trade  formerly  made  in  Lancashire, 
Cheshire,  and  thereabouts:  A  tax  being  laid  on  these  Easterling 
Clothes  would  occasion  the  reviving  of  that  coarse  Cloth-Trade  again 
with  us,  and  would  set  multitudes  at  work. 

"Adapted  from  England's  Improvement  by  Sea  and  Land:  To  Out-do 
the  Dutch  without  Fighting,  to  Pay  Debts  without  Moneys,  to  Set  to  Work 
All  the  Poor  of  England,  etc.,  144-146  (1677). 


THE  TARIFF  PROBLEM  295 

7.  Consider,  the  Foreign  Bed-ticking  coming  hither  cheap,  hath 
almost  destroyed  that  Trade  in  Dorcetshire ;  and  so  the  spinners  are 
Idle  and  Land  prices  fall;  and  in  this,  as  in  other  things,  we  send 
our  Moneys  into  Foreign  parts,  to  keep  their  Poor  at  work  and  sup- 
port them;  and  here  we  starve  our  own,  and  lose  that  Trade:  A 
Tax  upon  Foreign  Bed-ticking  would  prevent  all  this. 

8.  Consider  the  vast  and  infinite  quantities  of  Thred  ready 
spun,  that  comes  down  out  of  Germany  into  England,  and  here  made 
use  of;  It  is  of  late  discovered  that  the  cheapness  of  these  Threds 
will  eat  out  the  very  Spinning  in  most  parts  of  England ;  A  Tax 
being  put  upon  the  Threds  would  put  the  Wheel  to  work  in  England 
again.  This  is  of  great  consequence  to  the  Publick,  to  be  taken  into 
consideration ;  for  in  this  very  thing  of  spun-yarn,  no  less  than  Thirty 
thousand  People  would  be  here  imployed,  if  by  Law  it  were  en- 
couraged. 

E.     THE  CASE  FOR  PROTECTION 
149.     Protection  and  Industrial  Transformation"' 

BY  FRIEDRICH  UST 

The  transition  from  the  savage  to  the  pastoral,  and  from  the 
pastoral  to  the  agricultural  state  is  very  efficiently  promoted  by  free 
intercourse  among  nations.  The  elevation  of  an  agricultural  people 
to  the  condition  of  countries  at  once  agricultural,  manufacturing, 
and  commercial,  can  only  be  accomplished  under  free  trade  when 
the  various  nations  engaged  at  the  time  in  manufacturing  are  in  the 
same  degree  of  civilization. 

But  some  of  them,  favored  by  circumstances,  having  distanced 
others  in  manufactures,  commerce,  and  navigation,  have  adopted 
and  still  persevere  in  a  policy  well  adapted  to  give  them  the  monop-. 
oly  of  manufactures,  and  to  impede  the  progress  of  less  advanced 
nations  or  those  in  a  lower  degree  of  culture.  The  measures  en- 
forced by  such  nations  are  called  the  protective  system. 

The  anterior  progress  of  certain  nations  and  foreign  commercial 
legislation  have  compelled  inferior  nations  to  look  for  special  means 
of  effecting  their  transition  from  the  agricultural  to  the  manufac- 
turing stage  in  industry,  and  as  far  as  practicable,  by  a  system  of 
duties,  to  restrain  their  trade  with  more  advanced  nations  aiming  at 
a  manufacturing  monopoly.  The  system  of  import  duties  is  conse- 
quently a  natural  consequence  of  the  tendency  of  nations  to  seek  for 

^•Adapted  from  The  National  System  of  Political  Economy,  passim. 
Translated  by  G.  A.  Matile  (1841). 


296  CURRENT  ECONOMIC  PROBLEMS 

guarantees  of  their  existence  and  prosperity,  and  to  establish  and 
increase  their  weight  in  the  scale  of  national  influence.  Such  a 
principle  is  rendered  reasonable  only  so  far  as  it  renders  easy  the 
economical  development  of  a  nation. 

Such  restrictions  are  of  the  greatest  importance  because  of  the 
impetus  which  they  give  to  the  division  of  labor.  Individuals  would 
be  in  vain  laborious,  economical,  ingenious,  enterprising,  intelligent, 
and  moral,  without  a  division  of  labor,  and  a  cooperation  of  produc- 
tive power.  The  principle  of  the  division  of  labor  has  been  hitherto 
but  imperfectly  understood.  Industrial  production  depends  to  a 
great  extent  upon  the  moral  and  material  association  of  individuals 
for  a  common  end.    This  principle  extends  to  every  kind  of  industry. 

The  division  of  labor  and  the  combination  of  productive  powers 
take  place  in  a  nation  when  the  intellectual  power  is  applied  so  as  to 
cooperate  freely  and  efficiently  with  national  production.  A  merely 
agricultural  people,  in  free  intercourse  with  manufacturing  and  trad- 
ing nations,  will  lose  a  considerable  part  of  their  productive  power 
and  natural  resources,  which  must  remain  idle  and  unemployed.  It 
can  possess  neither  an  important  navigation,  nor  an  extensive  trade ; 
its  prosperity,  so  far  as  it  results  from  external  commerce,  may  be 
interrupted,  disturbed,  or  annihilated  by  foreign  legislation  or  by 
war. 

150.    America's  Allegiance  to  Protection^' 

BY  ALBERT  J.  LEFFINGWELL 

I  intend  to  state  a  few  propositions,  which,  as  generally  accepted 
tacts,  appear  to  me  to  influence  very  largely  the  national  acquies- 
cence of  America  in  the  protective  policy.  Perhaps  they  may  be 
heard  with  more  patience  from  one  who  has  never  had  the  slightest 
connection  with  the  manufacturing  interest;  who  ought  apparently 
to  clamor  for  the  cheapest  market,  but  who  is  nevertheless,  for  the 
following  reasons,  a  firm  adherent  to  the  protective  system : 

I.  No  country  of  modern  times,  which  is  without  manufactures, 
which  exports  raw  products  for  foreign  made  goods,  and  the  inhab- 
itants of  which  are  almost  wholly  engaged  in  cultivating  the  soil, 
has  succeeded  in  obtaining  wealth,  prosi>erity,  and  power  as  a  na- 
tion. This  simple  fact  is  recognized  by  every  civilized  government 
in  the  world.  Free-trade  at  the  present  day  is  either  an  English 
or  a  barbarous  practice.  Even  English  colonies  perceive  that  they 
must  build  up  their  home  industries  if  they  are  ever  to  gain  essential 

^'Adapted  from  an  article  in  the  London  Contemporary  Review, 
XXXVIII,  56-68   (1880). 


TEE  TARIFF  PROBLEM  297 

prosperity.  Just  so  far  as  Free-Trade  contributes  to  the  supremacy 
of  British  manufactures,  it  is  a  means  towards  the  maintenance  of 
national  wealth  and  power.  If  it  shall  ever  cease  to  do  this,  it  will 
be  abandoned. 

2.  If,  during  the  past  fifty  years,  America  had  f)ermitted  a  sys- 
tem of  unrestricted  trade  with  all  the  world,  she  could  never  have 
reached  the  development  of  her  manufactures  which  has  rendered 
her  independent ;  but  would,  today,  be  little  more  than  a  huge  agri- 
cultural colony,  exchanging  the  produce  of  her  fields  for  the  manu- 
factures and  fabrics  of  Europe.  To  be  a  nation  of  farmers,  to  ex- 
cell  in  sheep-raising  and  in  agriculture — this  is  the  English  ideal 
of  what  America  ought  to  content  herself  with  being.  If  there  ex- 
isted between  the  United  States  and  England  a  perfectly  free  and 
open  trade,  a  distribution  of  industry  unfettered  by  tariffs,  England 
would  be  the  manufacturing  member,  and  the  United  States  the 
agricultural  member  of  the  partnership. 

3.  Under  the  system  of  protection  America  has  been  able  to 
develop  her  boundless  mineral  resources,  to  encourage  the  growth 
of  her  manufacturing  industries,  until,  today,  she  is  not  merely  inde- 
pendent and  able  to  supply  her  own  wants,  but  she  exports  to  for- 
eign nations,  and. has  begun  to  compete  with  England  for  the  mar- 
kets of  the  world.  Conclusive  evidence  of  this  exists  on  all  sides. 
The  careful  observer  can  not  escape  it. 

4.  A  protective  tariff  has  been  the  most  important,  and,  indeed, 
the  essential  agent,  in  the  development  of  the  manufacturing  indus- 
tries of  the  United  States.  This  proposition  can  hardly  be  seriously 
denied  at  the  present  time.  Through  the  enhanced  prices  paid  at 
first  by  consumers,  manufactures  have  been  created  and  fostered. 
Perhaps  for  a  while  they  have  been  very  costly  to  the  nation.  But 
of  the  result  the  country  can  well  be  proud.  It  has  made  them  inde- 
pendent of  other  nations  for  their  supplies.  And,  in  the  end,  with 
growth  and  improvements,  goods  have  fallen  in  price,  greatly  to  the 
benefit  of  the  American  consumer.' 

5.  The  working  class  in  the  United  States,  under  a  system  of 
protection,  enjoy  a  greater  degree  of  prosperity  than  the  working 
classes  of  England  under  a  system  of  Free-Trade.  No  test  can  be 
more  satisfactory  and  practical  than  to  compare  the  position  of  the 
laborer  in  one  country  with  his  position  in  another;  and,  however 
difficult  it  may  seem  at  first  thought  to  weigh  in  the  balances  privi- 
lege, opportunity,  comfort,  and  general  prosperity,  certain  financial 
facts  and  statistics  afford  us  a  tolerably  safe  method  for  arriving  at 
sound  conclusions.     That  the  working  man  here,  if  thrifty,  has  a 


29S  CURRENT  ECONOMIC  PROBLEMS 

far  better  chance  for  improving  his  condition,  for  educating  his  fam- 
ily, for  acquiring  landed  property  than  is  the  case  with  his  brother 
in  Europe  is  generally  admitted.  It  could  not  well  be  otherwise 
where  one  may  so  easily  exchange  the  forge  or  loom  for  the  settler's 
cabin  and  the  plow.  The  great  mass  of  the  American  working 
people  are  better  housed,  better  fed,  better  clothed,  and  in  all  respects 
better  situated  than  the  working  millions  of  the  nations  whose  ports 
are  open  to  the  world. 

These  are  some  of  the  reasons  which  appear  to  me  to  largely  de- 
termine the  persistent  allegiance  to  the  doctrine  of  Protection  by  the 
people  of  the  United  States.  Of  the  ultimate  adoption  by  nations  of 
the  principles  of  absolute  Free-Trade  I  have  as  little  doubt  as  the 
most  sanguine  disciple  of  Adam  Smith,  But  it  is  a  dream  of  the  far- 
distant  future.  It  assuredly  cannot  be  realized  while  the  tramp  of 
armies  is  louder- than  the  din  of  the  work-shop.  By  America,  how- 
ever, the  day  of  its  adoption  may  be  much  nearer  our  own  time. 
History  often  repeats  itself.  Like  England,  by  thorough  protection 
of  our  growing  industries,  we  have  laid  the  foundations  of  success 
in  every  branch  of  manufacture.  So  soon  as  our  preeminence  is 
absolutely  assured,  there  will  exist  no  longer  the  necessity  to  pro- 
tect. Of  that  future  we  have  apparently  every  reason  to  hope. 
When  the  production  of  American  skill  and  industry  is  found  in 
shops  in  Europe  cheaper  than  their  home-made  wares,  it  is  probable 
that  we  shall  then  take  our  turn  in  eulogizing  Free-Trade, "in  open- 
ing our  ports  to  all  nations,  and  in  preaching  the  blessings  of  unre- 
stricted trade  to  a  reluctant  and  still  doubting  world. 

151.     Present  Validity  of  the  Young-Industry  Argument^' 

BY  FRANK  WILLIAM  TAUSSIG 

The  possibility  of  good  results,  from  protective  duties  in  young 
countries  is  now  denied  by"  few.  A  different  question,  and  one  not 
so  simple,  is  whether  there  is  any  prospect  of  gain  from  protecting 
young  industries  in  a  country  as  fully  developed  as  the  United  States 
has  been  since  i860;  whether,  for  so  robust  and  full-grown  a  social 
body  as  this  has  become,  ridicule  is  not  a  sufficient  answer,  whatever 
the  terms  in  which  the  argument  is  stated.  In  that  early  formulation 
of  the  argument  which  won  a  respectful  hearing  from  the  fair- 
minded,  stress  was  laid  on  the  general  conditions  of  the  country  im- 

"Adapted  from  Some  Aspects  of  the  Tariff  Question,  20-23.  Copj'fight 
by  Harvard  University  Press  (1915).  The  practical  validity  of  the  argu- 
ment, with  reference  to  particular  commodities,  is  discussed  in  succeeding 
chapters  of  the  book. 


THE  TARIFF  PROBLEM  299 

posing  protective  duties.  It  was  a  young  country  that  was  spoken  of 
by  Mill,  rather  than  one  having  young  industries.  List's  well-known 
plea  rested  on  the  doctrine  of  stages  in  economic  evolution — on  the 
inevitableness  of  the  transition  from  the  agricultural  and  extractive 
stage  to  the  manufacturing  stage,  and  on  the  advantages  of  protective 
duties  for  furthering  and  easing  the  transition.  He  found  the  United 
States  in  this  stage  of  development  when  he  was  sojourning  here 
during  the  period  of  our  early  protective  movement.  On  his  return 
to  Germany  he  found  his  own  country  in  a  similar  stage,  and 
agitated  for  nurturing  protection  there  also.  But  does  the  same 
possibility  exist  when  this  period  of  transition  is  past,  when  the 
manufacturing  stage  has  been  fairly  entered,  when  the  question  no 
longer  is  whether  manufacturing  industries  shall  be  established  at  all, 
but  whether  some  particular  kinds  of  manufactures  shall  be  added  to 
others  already  flourishing? 

I  am  disposed  to  admit  that  there  is  scope  for  protection  to  young 
industries  even  in  such  a  later  stage  of  development.  Any  period 
of  transition  and  of  great  industrial  change  may  present  the  oppor- 
tunity. No  doubt  the  obstacles  to  new  ventures  were  greater  during 
the  first  half  of  the  nineteenth  century  than  they  have  come  to  be  in 
the  modern  period.  The  general  diffusion  of  technical  knowledge 
and  technical  training,  the  lessening  of  secrecy  in  trade  processes 
which  is  the  inevitable  result  of  large-scale  operations,  the  greater 
plenty  of  expert  mechanics  and  machinists — all  these  factors  tend  to 
facilitate  the  establishment  of  industries  whose  difficulties  are  no 
more  than  temporary  and  transitional. 

None  the  less  the  early  stage  of  any  new  industry  remains  diffi- 
cult. In  every  direction  economists  have  come  to  recognize  the 
immense  force  of  custom  and  routine,  even  in  countries  where 
mobility  and  enterprise  are  at  the  highest.  Departure  from  the 
habitual  paths  of  industry  brings  unexpected  problems  and  diffi- 
culties, false  starts  and  initial  losses,  often  a  fruitless  imitation  of 
familiar  processes  before  new  and  better  ones  are  devised.  All  this 
is  made  more  trying  when  a  young  competitor  is  trying  to  enter  the 
market  against  a  producer  who  is  established  and  well  equipped. 
The  obstacles  in  the  way  of  promising  industries,  though  doubtless 
not  so  great  as  they  were  a  century  ago,  remain  great.  The  experi- 
ences of  the  United  States  during  the  last  fifty  years  indicate  that 
there  remains  in  modern  times  at  least  the  possibility  of  acquiring  a 
self-sustaining  industry  by  aid  during  the  early  stages. 

The  most  striking  cases  in  which  success  of  this  sort  may  be 
fairly  alleged  to  have  been  secured  are  those  of  industries  quite  new 
— not  existing  at  all  at  the  time  when  the  protective  duty  "vas 


300  CURRENT  ECONOMIC  PROBLEMS 

imposed.  Where  an  industry  is  already  started,  or  where  there  exist 
others  closely  related,  further  extension  may  be  expected  to  take 
place,  if  the  conditions  are  really  favorable,  without  any  legislative 
stimulus.  If  a  silk  manufacture  already  is  established,  the  develop- 
ment of  new  branches  of  silk-making  is  not  likely  to  meet  with  the 
special  obstacles  to  young  industries.  And  if,  none  the  less,  protec- 
tion has  been  applied,  and  if  thereafter  a  self-sustaining  additional 
branch  of  the  manufacture  has  grown  up,  the  question  at  once  pre- 
sents itself,  Would  not  the  same  growth  have  ensued  in  any  case, 
and  was  the  protection  needed?  Such  skepticism,  however,  would 
hardly  be  justified  if  there  had  been  no  silk  manufacture  of  any  sort 
before  the  protection  was  applied.  Precisely  this  outcome — the 
establishment  of  an  industry  entirely  new — has  appeared  under  our 
duties  on  silks  during  the  last  half -century.  Without  these  duties  it 
is  doubtful  whether  there  would  have  been  any  silk  manufacture  at 
all.  And  if  in  course  of  time  that  manufacture  proved  capable  of 
supplying  its  products  more  cheaply  than  those  imported,  or  at  least 
as  cheaply,  the  presumption  would  be  strong  that  a  new  industry  had 
been  successfully  nurtured.  In  the  case  of  worsteds,  also,  there  was 
virtually  no  industry  at  all  before  the  Civil  War;  it  has  grown  up 
under  the  barrier  of  protection.  The  same  thing  has  happened  with 
plate  glass,  and  with  many  another  commodity.  In  such  cases,  if 
eventual  independence  has  been  achieved,  it  may  be  fairly  said  that 
protection  was  applied  to  an  industry  really  young. 

Further:  the  length  of  time  to  be  allowed  for  the  experiment 
should  not  be  too  brief.  Ten  years  are  not  enough;  twenty  years 
may  be  reasonably  extended;  thirty  years  are  not  necessarily  un- 
reasonable. What  has  already  been  said  of  the  tenacity  of  old  habits 
and  the  difficulties  of  new  enterprises  justifies  the  contention  that  a 
generation,  more  or  less,  may  elapse  before  it  is  clear  whether  success 
has  been  really  attained. 

Nevertheless,  in  the  end  the  final  test  must  be  applied — can  the 
industry,  after  a  period  not  unreasonably  long,  maintain  itself  un- 
aided? The  gist  of  the  young-industry  argument  is  that  the  com- 
munity bears  an  initial  charge  for  the  sake  of  an  eventual  gain.  That 
gain  is  secured  only  if  the  community  is  finally  supplied  with  its 
goods  as  cheaply  as  the  displaced  foreigner  could  supply  it.  The 
young  industry  must  mature  so  fully  as  to  sustain  itself.  The  final 
test  would  seem  to  be  indiflFerence  to  the  continuance  of  the  duty 
and  willingness  to  meet  foreign  competition  on  even  terms.  If  the 
industry  continues  to  need  protection  indefinitely,  and  never  succeeds 
in  oflFering  its  products  as  cheaply  as  they  could  be  got  by  importa- 
tion, then  its  protection  cannot  be  defended  on  this  plea.     There 


THE  TARIFF  PROBLEM  301 

may  be  good  pleas  on  political  or  social  or  military  grounds ;  or  the 
stock  arguments  about  home  labor  and  home  markets  and  the  "acqui- 
sition" of  valuable  industries  may  be  repeated ;  but  there  can  be  no 
pretense  that  a  young  industry  has  been  nurtured  with  success. 

152.     Protection  and  the  Formation  of  Capital^' 

BY  AI.VIN  S.  JOHNSON 

The  additions  to  the  capital  of  a  nation  must  come  from  the 
annual  income.  That  the  income  of  a  nation  will,  at  any  given  time, 
attain  its  maximum  under  freedom  of  trade  is  a  proposition  that 
admits  of  only  rare  exceptions.  Does  it  not  then  follow  that  the 
capacity  of  a  nation  to  accumulate  capital  will  be  greater  under  free 
trade  than  under  protection?  If  all  classes  in  society  saved  equal 
proportions  of  their  incomes,  it  would  follow  of  necessity  that  what- 
ever tends  to  reduce  the  national  income  must  reduce  the  annual 
addition  to  the  fund  of  capital.  But,  in  fact,  the  disposition  to  accu- 
mulate capital  varies  widely  in  the  different  classes  that  compose  a 
nation ;  and  it  is  the  essence  of  protection  to  alter  the  proportions  in 
which  the  social  income  is  distributed.  We  cannot,  therefore,  accept 
without  further  examination  the  view  that  protection  and  the  conse- 
quent reduction  of  the  social  income  must  necessarily  retard  the  ac- 
cumulation of  capital. 

Apart  from  purely  individual  differences  in  thrift,  the  tendency 
•to  save  is  affected  by  general  economic  and  social  conditions  that  en- 
able us  to  divide  the  members  of  society  into  more  or  less  distinct 
thrift  classes.  A  man  is  not  likely  to  save,  if  he  knows  of  no  invest- 
ment attractive  to  him ;  he  is  not  very  likely  to  save  if  the  road  to  the 
esteem  of  his  fellows  lies  through  expenditures  for  consumption. 

The  most  attractive  form  of  investment  is  the  acquisition  of 
tangible  capital  goods  to  be  employed  under  one's  own  control. 
Such  an  investment  gives  visible  evidences  of  economic  efficiency. 
Accordingly  those  who  are  in  a  position  to  make  such  investments 
"  have  the  strongest  incentive  to  save.  These  persons  are  entrepre- 
neurs who  have  not  yet  fully  equipped  their  businesses  with  capital. 
Them  we  may  place  in  our  highest  thrift  class.  We  may  assign  to  a 
lower  thrift  class  those  who  live  upon  salaries  or  returns  from  pro- 
fessional ser^'ice.  They  have  no  ever-present  means  of  investment ; 
they  are  under  the  domination  of  rigid  standards  of  consumption. 

^•Adaoted  from  an  article  in  the  Political  Science  Quarterly,  XXIII. 
221-241.    Copyright  (1908). 


302  CURRENT  ECONOMIC  PROBLEMS 

They  must,  however,  make  provision  for  disability  or  superannua- 
tion. In  a  yet  lower  class  I  should  place  those  who  derive  their  in- 
comes from  rents,  interest  on  mortgages  and  bonds,  dividends  on 
stocks, — the  funded  income  class.  They  are  in  no  peculiarly  favor- 
able situation  to  make  new  investments;  they  are  subject  to  rigid 
standards  of  consumption;  and  they  are  under  no  compulsion  to  set 
aside  a  portion  of  their  incomes  for  future  needs.  In  the  lowest 
class  of  all  I  place  the  great  mass  of  workingmen,  since  they  have 
the  least  favorable  opportunity  for  investment  and  are  subject  to  the 
most  tyrannical  standards  of  consumption. 

When  an  industry  reaches  the  acme  of  development,  the  position 
of  the  independent  entrepreneur  becomes  assimilated  to  that  of  the 
recipient  of  funded  income.  Accordingly  we  are  justified  in  draw- 
ing a  distinction  between  the  entrepreneur  engaged  in  an  industry 
which  quickly  attains  its  full  development  and  those  engaged  in  an 
industry  of  practically  unlimited  development.  Thus  we  arrive  at 
the  conclusion  that  the  richest  and  most  enduring  sources  of  new 
capital  are  the  interest  and  profits  of  the  manufacturing  entrepre- 
neur class. 

A  practical  tariflF  system  cannot  bestow  all  its  benefits  upon  a 
higher  thrift  class  and  impose  all  its  burdens  upon  a  lower  one.  Nev- 
ertheless it  can  hardly  be  denied  that  the  chief  benefits  of  modem 
protectionism  have  been  bestowed  upon  those  engaged  in  capitalistic 
enterprise.  In  the  United  States  protection,  down  to  the  present  day, 
has  meant  little  but  the  diversion  of  income  from  all  other  classes 
in  society  to  the  capitalist  manufacturer.  The  farmer  and  wage- 
earner  have  carried  a  net  burden ;  the  manufacturer  alone  has  se- 
cured a  net  gain.  Here  a  rapidly  developing  agriculture  has  been 
taxed  for  the  benefit  of  rapidly  developing  manufactures.  Although, 
under  these  conditions  a  high  thrift  class  has  been  taxed,  agricul- 
ture would  quickly  have  attained  a  state  of  full  development,  and 
thus  would  have  ceased  to  give  large  incentive  to  thrift.  The  im- 
petus given  to  manufactures,  which  under  modern  conditions  pos- 
sess almost  unlimited  power  of  absorbing  capital,  must,  of  itself, 
have  accelerated  accumulation.  It  is  worth  noting  that  in  the  long 
run  protection  in  a  democratic  state  must  favor  the  higher  thrift 
classes  at  the  expense  of  the  lower.  In  every  state  protection  is 
essentially  a  minority  interest.  The  export  industries  can  gain  noth- 
ing from  the  policy  ;  industries  that  supply  a  purely  local  demand  also 
gain  nothing.  These  two  groups  of  industries  outweigh  the  indus- 
tries which  would  suffer  under  competition.  The  number  of  persons 
whose  incomes  are  diminished  by  protection  will  greatly  exceed  the 
number  of  persons  whose  incomes  are  enlarged  by  it. 


THE  TARIFF  PROBLEM  303 

If  it  is  true  that  the  general  tendency  of  modem  protection  has 
been  to  divert  income  from  a  lower  to  a  higher  thrift  class  we  are 
justified  in  saying  that  protective  duties  have  played  a  part  in  equip- 
ing  modem  society  with  the  vast  stock  of  capital  goods  which  it 
now  possesses.  For  proof  of  this  we  must  have  recourse  to  an  analy- 
sis of  the  effects  of  protection  upon  capital  formation  in  concrete 
instances.  Let  us  suppose  that  in  a  country  which  formerly  im- 
ported its  silk  a  heavy  duty  is  levied  with  the  object  of  creating  a 
silk-manufacturing  industry  at  home.  Men,  intending  to  invest 
otherwise,  are  induced  to  go  into  the  silk  business.  At  the  begin- 
ning the  capital  goods  with  which  the  new  industry  is  equipped  rep- 
resent no  net  addition  to  the  productive  wealth  of  the  country.  .  But 
a  new  industry  is  naturally  speculative  in  character;  and  the  more 
conservative  entrepreneurs  are  slow  to  enter  it.  In  the  nature  of  the 
case  the  industry  will  be  undersupplied  with  capital.  This  means 
that  capital  will  be  more  than  ordinarily  productive  in  the  industry ; 
it  means  further  that  entrepreneurs  will  be  steadily  endeavoring  to 
.  secure  more  capital  to  expand  their  operations.  Under  these  cir- 
cumstances it  is  inevitable  that  a  large  proportion  of  the  profits  cre- 
ated by  the  industry  will  be  reinvested  in  it.  Here  then  we  have  a 
net  addition  to  the  productive  wealth  of  the  country. 

We  arrive  at  practically  the  same  result  if  we  select  a  commodity 
entering  chiefly  into  the  consumption  of  the  wage-earners.  A  large 
proportion  of  the  wage-earning  class  saves  practically  nothing, 
whether  wages  are  high  or  low.  Standards  of  constunption  tend  to 
absorb  any  surplus  income  that  may  appear.  A  duty  borne  by  the 
wage-earning  class  places  little  check  upon  accumulation.  Thus  the 
main  effect  of  the  duty  is  to  divert  income  from  a  lower  thrift  class 
to  a  higher  one,  and  hence  to  give  an  impetus  to  the  formation  of 
capital. 

In  answer  to  this  line  of  argument  it  is  alleged  that  a  tariff  con- 
structed in  such  a  way  as  to  equalize  costs  of  production  at  home  and 
abroad  would  not  permit  the  surplus  profits  out  of  which  capital  is 
built.  This  is  tme.  But  one  may  safely  challenge  all  the  economists 
in  the  world  to  point  to*  one  instance  of  a  "scientific"  tariff.  In  the 
nature  of  things  there  can  be  no  such  tariff.  What  manufacturers' 
association  would  conduct  political  campaigns,  roll  logs,  and  other- 
wise exert  itself  for  the  mere  privilege  of  being  placed  on  an  equal- 
ity with  the  foreigner?  What  would  be  the  object  in  establishing 
a  new  industry  if  it  were  to  offer  only  profits  that  might  be  secured 
from  industries  already  existing? 

It  is  tme  that  if  the  protected  industry  operates  under  great  nat- 
ural disadvantages,  as  in  the  classical  case  of  producing  wine  in 


304  CURRENT  ECONOMIC  PROBLEMS 

Scotland,  the  burden  to  the  consumer  will  be  so  much  greater  than 
the  net  gain  of  the  producer  that  the  net  effect  upon  accumulation 
will  be  unfavorable.  But  it  is  not  the  practice  of,entrepreneurs  to 
demand,  nor  of  statesmen  to  grant,  protection  for  industries  that 
labor  under  extraordinary  disadvantages.  Rather  the  selection  of 
industries  for  protection  tends  to  be  such  that  a  greater  part  of  the 
tribute  exacted  from  the  consumer  is  bestowed  upon  the  producer  in 
the  form  of  profit  instead  of  being  wasted  in  the  insane  struggle  with 
refractory  natural  conditions. 

What  is  the  test  by  which  it  can  be  determined  whether  the  pro- 
tective system  shall  be  abandoned?  By  the  academic  protectionists, 
duties  should  be  abolished  when  the  protected  industries  are  in  a  po- 
sition to  meet  foreign  competition.  According  to  the  theory  here 
put  forth,  they  should  not  be  removed  until  the  protected  industries 
cease  to  develop  rapidly.  Then  the  duty  should  be  removed  whether 
the  industry  can  meet  foreign  competition  or  not. 

153.     The  Economics  of  Protection 

The  economic  fallacy  of  free  trade  lies,  not  in  its  logic,  but  in  its 
assumptions.  The  latter  are  part  and  parcel  of  the  static  and  indi- 
vidualistic system  of  thought  of  the  later  eighteenth  century  which 
made  Nature  the  hero  in  the  piece  and  assigned  to  the  state  the  role 
of  villain.  At  the  basis  of  the  argument  for  free  trade  are  the  two 
quite  dissimilar  but  complementary  propositions  that  men  are  guided 
by  a  supreme  natural  pre-wisdom  to  choose  the  best  lines  of  pro- 
duction, and  that  the  process  of  production  consists  in  juggling 
together  a  certain  number  of  productive  units  from  each  of  three 
great  hoppers,  called  Land,  Labor,  and  Capital.  To  make  clear  the 
dependence  of  the  theory  upon  these  underlying  assumptions,  let  us 
strip  it  of  its  verbiage  and  reduce  it  to  its  simplest  terms. 

It  may  best  be  stated  as  a  problem :  Given  a  definite  amount  of 
land,  of  capital,  and  of  labor ;  in  what  particular  permutations  shall 
the  three  be  put  up  in  such  a  way  as  to  secure  the  largest  amount  of 
consumptive  goods?  Obviously,  since  labor  and  capital  are  the 
human  factors,  they  must  be  economized;  their  supplies  must  be 
made  to  "go  as  far  as  possible."  This  can  be  done  by  making  Nature 
shoulder  the  largest  possible  amount  of  the  actual  work  of  produc- 
tion. This  last  can  be  achieved  by  having  each  article  produced  in 
the  place  best  fitted  for  its  production,  and  letting  the  peoples  of  the 
various  places  exchange  their  surpluses.  In  other  words,  the  best 
possible  adjustment  of  the  mobile  factors  of  labor  and  capital  must 
be  made  to  the  immobile  factor,  land.     To  illustrate,  an  attempt 


THE  TARIFF  PROBLEM  305 

should  not  be  made  to  produce  both  watches  and  oranges  in  Con- 
necticut or  Florida.  With  the  available  but  limited  amounts  of  labor 
and  capital  a  larger  quantity,  both  of  watches  and  of  oranges,  can 
be  produced,  if  Connecticut  devotes  itself  to  the  production  of 
watches  and  Florida  to  the  cultivation  of  oranges,  than  if  each  tries 
to  produce  for  itself  both  of  these  commodities.  If,  then,  the  gov- 
ernment does  not  interpose  artificial  restrictions,  a  scheme  of  profits 
and  losses  will  secure  the  localization  of  industries  at  places  best 
fitted  for  them.  Consequently  a  larger  amount  of  consumable  goods 
will  be  produced  under  free  trade  than  under  a  restrictive  system. 
The  theory  might  properly  be  called  the  law  of  the  economic  utiliza- 
tion of  labor  and  capital. 

In  view  of  this  statement  the  weakness  in  the  assumptions  of  the 
argument  will  quickly  be  noted.  The  first  is  the  preconception  of  the 
rationality  of  human  judgment  in  the  localization  of  industry.  It 
imputes  omniscience  to  that  judgment;  for  the  decision  has  to  be 
made  before  the  industry  is  located ;  and  the  evidence  to  guide  that 
judgment,  in  profits  and  losses,  is  not  available  until  much  later.  At 
best,  rational  judgment  can  locate  industries  at  points  where  Nature's 
contribution  can  be  most  fully  utilized  only  after  a  protracted  and 
costly  period  of  experimentation.  It  is  doubtful,  too,  whether  the 
owners  of  natural  resources,  who  have  had  little  experience  with  the 
larger  world  of  affairs,  can  determine  just  what  industries  are 
adapted  to  a  given  locality.  If  they  are  left  alone,  custom  is  likely 
to  ripen  into  the  inertia  that  breeds  stagnation.  Further,  because  of 
the  intricacy  of  the  industrial  cycle  and  the  imperfection  and  lack 
of  availability  of  business  barometers,  it  is  impossible  for  the  average 
business  man  to  look  into  the  future  and  see  all  the  exigencies  which 
converge  to  make  a  business  a  success  or  a  failure.  No  one  expert 
is  suflRcient  for  this  task.  Technical  experts  who  know  all  the  po- 
tential productive  capacities  of  a  particular  place  need  to  be  assisted 
by  business  experts  who  are  able  to  forecast  demand  and  general 
business  conditions.  A  group  of  them  should,  by  the  use  of  scientific 
methods,  determine  the  industrial  needs  that  are  most  pressing  and 
the  localities  best  adapted  to  the  production  of  articles  to  satisfy 
these  needs.  Encouragement  should  be  given,  if  conditions  are 
favorable,  to  the  prosecution  of  various  businesses.  Towards  this 
end  the  protective  tariff  should  prove  a  most  useful  device. 

The  second  glaring  error  in  the  assumptions  is  a  conception  of 
potential  resources  in  fixed  terms.  The  elements  out  of  which  useful 
goods  are  made  are  most  valuable.  Our  natural  resources  are  what 
they  are,  because  our  industrial  system  is  what  it  is.  Change  the 
system,  and  the  catalogue  of  our  resources  would  be  materially 


3o6  CURRENT  ECONOMIC  PROBLEMS 

altered.  In  a  sense  China's  wealth  is  far  greater  than  Japan's,  yet 
it  lacks  a  certain  almost  indefinable  dynamic  quality.  Labor,  particu- 
larly, defies  expression  in  rigid  calculable  terms.  Man  is  possessed 
of  many  potential  gifts.  The  majority  of  these  always  remain  latent ; 
some  two  or  three  are  developed.  Take  a  boy  from  a  rural  environ- 
ment, where  possibilities  are  narrowly  circumscribed,  to  a  large  city 
and  watch  unsuspected  talents  develop.  Physically  speaking,  the 
amount  of  land,  capital,  and  labor  may  remain  the  same.  Each  as  it 
is,  as  a  static  thing,  may  be  best  utilized  under  free  trade.  But  the 
important  question  is,  Does  society  under  free  trade  develop  the  most 
important  latent  capacities  ?  Does  free  trade  permit  society  to  utilize 
its  full  capacity  for  development?  The  worst  that  is  said  about 
protection  is  that  for  a  time  it  imposes  higher  prices  upon  consumers' 
goods.  Admit  the  charge.  Its  cost  is  far  more  than  offset  by  its 
transformation  of  society  into  a  more  complex  and  integrated  whole, 
which  offers  a  larger  range  of  opportunity  to  the  mdividual,  and 
surrounds  him  with  an  atmosphere  surcharged  with  a  spirit  that 
brings  out  his  latent  powers.  Again,  the  fallacy  of  free  trade  is  that 
it  overlooks  the  possibility  of  developing  new  capacities  for  produc- 
tive work. 

The  third  glaring  error  is,  in  a  sense,  of  a  kind  with  the  second. 
It  is  the  assumption  of  a  fixed  quantity  of  each  of  the  productive 
factors.  Our  own  experience  has  demonstrated  quite  clearly  the 
possibility  of  greatly  increasing  two  of  these  factors,  labor  and 
capital,  and  in  a  way  increasing  the  third,  land,  by  the  creation  of  an 
industrial  system  that  allows  a  fuller  utilization  of  natural  resources. 
In  the  argument  above,  labor  was  the  important  factor ;  here  capital 
takes  the  first  place.  The  importance  of  a  definite  increase  in  the 
volume  of  capital  is  not  clearly  enough  appreciated.  Land,  of  course, 
physically  speaking,  is  fixed  in  quantity.  If  a  nation  has  reached 
the  point  of  diminishing  returns,  an  increase  in  numbers  is  attended 
by  a  fall  in  the  standard  of  living.  Material  progress,  then,  is  asso- 
ciated with  an  increase  in  the  quantity  of  capital.  Protection,  as 
Professor  Johnson  has  shown  in  another  reading,  increases  for  pro- 
tected businesses  the  margins  between  costs  and  selling  prices.  A 
large  part  of  the  additional  profits  realized  is  turned  back  into  the 
business  in  the  form  of  reinvested  capital.  The  growth  of  an  in- 
dustry is  closely  dependent  upon  its  control  by  a  permanent  man- 
agement who  have  vast  pecuniary  stakes  in  its  success.  This  is 
possible  only  under  a  system  which  permits  expansion  through 
reinvestment  of  profits.  This  protection  makes  possible.  The 
alternative,  involving  the  investment  of  outside  capital  in  the  busi- 
ness, can  be  taken  only  at  the  cost  of  a  sacrifice  of  part  of  the 


THE  TARIFF  PROBLEM  307 

ownership,  and,  consequently,  of  the  control  of  the  enterprise.  Since, 
therefore,  material  progress  is  dependent  upon  the  addition  of  new 
increments  to  the  available  supply  of  capital,  its  debt  to  protection  is 
a  large  one. 

Since  protection  increases  the  amount  of  invested  capital,  it 
follows  that  it  increases  the  incomes  of  the  mass  of  individuals.  The 
argument  is  perhaps  already  evident,  but  let  us  state  it,  at  least  for 
the  most  important  share  in  distribution,  that  of  labor.  As  political 
economists  agree,  the  wages  of  labor  depend  upon  the  marginal 
productivity  of  the  laborer.  Capital  increases  that  productivity,  and 
consequently  raises  wages.  To  illustrate,  let  us  take  two  countries, 
Denland  and  Norland.  They  possess  the  same  number  of  laborers, 
similar  natural  resources,  the  same  technical  system,  and  the  same 
amount  of  accumulated  capital.  It  is  evident  that  under  our  principle, 
the  real  wages  will  be  the  same  in  the  two  countries.  If,  however, 
Denland  differs  from  Norland  only  in  having  a  larger  amount  of 
accumulated  capital,  then  the  marginal  laborer  in  that  country  is 
working  with  improved  equipment,  and  will  turn  out  a  larger  product 
than  the  marginal  laborer  in  Norland.  Accordingly  wages  will  be 
higher.  Likewise,  an  increase  in  accumulated  capital  in  Norland 
itself  improves  the  facilities  with  which  the  marginal  laborer  works, 
and  consequently  increases  his  product  and  his  wage.  Under  pro- 
tection, therefore,  wages  will  be  higher  than  under  free  trade. 

Protection,  as  a  system,  has  seemed  to  the  economists  to  lack  a 
fundamental  basis  only  because  they  have  insisted  upon  judging  it 
on  the  basis  of  the  static  and  individualistic  assumptions  underlying 
their  own  creeds.  We  must  remember  that  free  trade  is  a  theory  of 
the  proper  utilization  of  definitely  limited  factors  of  production. 
Protection  is  a  theory  of  the  development  out  of  crude  human  stuff 
and  natural  resources  of  the  largest  possible  productive  funds  and  of 
the  best  conservation  of  these  funds.  It  goes  back  of  the  factors  of 
production,  the  starting-point  of  the  free  trader,  and  seeks  to  increase 
their  size  and  intensify  their  force.  When  development  stops,  and 
society  becomes  static,  then  it  will  be  to  our  advantage  to  adopt  the 
free-trade  theory  of  maximum  utilization.  But  so  long  as  industrial 
society  possesses  capacity  for  growth,  we  can  best  profit  by  clinging 
to  the  use  of  the  developmental  theory  of  protection. 

154.     Protection  and  the  National  Defense 

Until  a  few  months  ago  it  was  conventional  to  insist  that  even  the 
partial  free  trade  which  has  been  attained  in  the  Western  world  has 
caused  the  war-drum  to  throb  no  longer.  The  argument  was  rational, 
and  since  it  was  assumed,  for  some  unknown  reason,  that  man's 


3o8  CURRENT  ECONOMIC  PROBLEMS 

actions  were  rational,  it  was  quite  convincing.  It  ran  something  like 
this :  The  actions  of  nations,  like  those  of  individuals,  are  premised 
upon  a  desire  to  realize  the  highest  measure  of  material  welfare. 
States  are,  therefore,  likely  to  do  those  things  which  lead  to  an 
increase  in  welfare,  and  to'  leave  undone  those  things  which  seriously 
threaten  it.  Now  commerce  ties  industrial  countries  together  with 
bonds  of  common  pecuniary  interests.  So  close  are  these  and  so 
intricate  is  the  scheme  of  pecuniary  interests  which  is  created,  that 
anything  which  breaks  the  commercial  nexus  seriously  threatens  the 
profits  and  material  welfare  of  capitalists  and  laborers  alike  in  many 
industries  in  many  countries.  Because  these  relations  are  not  of 
dependence,  but  rather  of  interdependence,  nations  cannot  afford  to 
fight.  The  antipathy  to  fighting  is  strengthened  by  the  prominence 
of  commercial  opinion  in  determining  national  policy.  On  the  con- 
trary the  gains  from  war  are  illusory.  Increases  in  territory  are 
nominal  rather  than  real.  They  are  attended  by  no  great  increase 
in  material  welfare.  Indemnities  do  not  repay  their  cost  of  collection. 
Loot  is  a  breach  of  the  ethics  of  warfare.  Consequently  the  partial 
free  trade  of  the  present  is  an  excellent  investment  in  peace  insur- 
ance. 

Unfortunately,  however,  the  events  of  the  last  few  months  have 
proved  that  the  wisdom  of  nations  does  not  reside  in  the  rational 
calculations  of  ledgers.  The  pecuniary  fact  has  as  yet  completely 
conquered  neither  the  statesman  nor  the  man  in  the  street  sufficiently 
to  make  economics  the  basis  of  national  action.  Instinct  and  impulse 
are  still  associated  with  rationality  in  political  judgment.  Race  and 
creed  and  politics  are  still  matters  of  concern.  The  pocketbook  has 
not  mastered  hate,  and  the  bank-ledger  has  not  as  yet  won  the 
victory  over  jealousy.  Accordingly,  the  European  conflict  teaches 
quite  clearly  that,  whatever  may  be  rational,  there  is  more  than  a 
possibility  that  a  nation  may  find  itself  suddenly  at  war. 

The  supreme  national  duty,  then,  is  to  be  ready  for  war.  In  this 
preparation  the  tariff  policy  is  a  matter  of  the  greatest  moment. 
Clearly,  whatever  may  be  our  disadvantage,  it  will  not  do  to  depend 
upon  a  foreign  source  of  supply  for  munitions  of  war.  A  navy  alone 
may  stand  between  us  and  that  source.  Should  the  fleet  be  defeated, 
there  would  be  no  chance  for  us  to  save  ourselves.  But  only  a 
moment's  reflection  is  necessary  to  show  that,  even  if  we  manu- 
facture our  own  munitions,  it  is  equally  necessary  that  we  produce 
the  raw  materials  out  of  which  they  are  to  be  made.  The  cutting 
off  of  a  single  essential  raw  material  would  prove  fatal.  To  muni- 
tions must  be  added  all  that  long  list  of  articles  which,  under  modem 
conditions,  are  essential  to  the  successful  conduct  of  the  war.    Sol- 


THE  TARIFF  PROBLEM  309 

diers,  if  they  are  expected  to  win  battles,  must  be  properly  fed, 
clothed,  and  housed.  We  can  depend  upon  the  caprice  of  import 
for  no  article  essential  to  their  personal  efficiency.  We  must  also 
have  many  auxiliary  articles  and  devices  upon  which  the  success  of 
the  force  as  a  fighting  unit  depends.  These  include  horses,  automo- 
biles, gasoline,  copper,  steel,  drugs,  chemicals,  and  innumerable  other 
things.  Our  transportation  system,  too,  must  be  prepared  to  meet 
military  exigencies.  In  short,  war  practically  involves,  as  it  is 
carried  on  under  the  modern  machine  process,  making  the  whole 
industrial  system  function  toward  military  efficiency.  War  comes 
unexpectedly.  An  industry,  on  the  contrary,  cannot  be  quickly 
started.  Time  and  experimentation  are  necessary  to  make  it  fit  into 
a  complicated  industrial  scheme.  Consequently  industries  which 
supply  every  essential  article  required  in  war  must  be  built  up  to  high 
efficiency  in  time  of  peace.  At  best  we  can  expect  only  a  few 
industries  to  be  built  up  in  just  the  right  way  in  response  to  the 
capricious  demand  of  pecuniary  profit.  A  use,  and  a  very  extensive 
use  of  protection  is,  therefore,  necessary,  to  prepare  a  nation  for 
the  acute  stress  that  may  mean  life  or  death. 

* 
F.    THE  INFLUENCE  OF  THE  TARIFF  ON  WAGES 

155.     High  Wages  an  Obstacle  to  Manufacture^" 

BY  DANIEL  WEBSTER 

The  present  price  of  iron  at  Stockholm  is  not  far  from  $40.00  at 
the  mines.  Freight,  insurance,  and  duty  make  the  price  of  Swedish 
iron  in  our  market  about  $83.00.  We  perceive  by  this  that  the  cost 
of  the  iron  is  doubled  in  reaching  us  from  the  mine  in  which  it  is 
produced.  Why,  then,  cannot  iron  be  manufactured  at  home  ?  Our 
ore  is  as  good,  or  better.  Nothing  could  be  more  sure  of  a  constant 
sale.    It  is  an  article  of  absolute  permanent  necessity. 

Sir,  the  true  explanation  seems  to  me  to  lie  in  the  present  prices 
of  labor.  I  think  it  would  cost  us  precisely  that  which  we  could 
worst  afford,  that  is,  great  labor.  The  principal  ingredient  in  the 
cost  of  bar  iron  is  labor.  Of  manual  labor,  no  nation  has  more  than 
a  certain  quantity,  nor  can  it  be  increased  at  will.  As  to  some  opera- 
tions, indeed,  its  place  may  be  supplied  by  machinery ;  but  there  are 
other  services  which  machinery  cannot  perform  for  it,  and  which  it 
must  perform  for  itself.  A  most  important  question  for  every  nation 
is  how  it  can  best  apply  that  quantity  of  labor  which  it  is  able  to 

^"Adapted  from  a  speech  delivered  in  the  House  of  Representatives, 
April  I  and  2,  1824. 


310  CURRENT  ECONOMIC  PROBLEMS 

perform.  Labor  is  the  great  producer  of  wealth ;  it  moves  all  other 
causes.  If  we  call  machinery  to  its  aid,  it  is  still  employed,  not  only 
in  using  the  machinery,  but  in  making  it.  Now,  with  respect  to  the 
quantity  of  labor  different  nations  are  differently  circumstanced. 
Some  need,  more  than  anything,  work  for  hands;  others  require 
hands  for  work ;  and  if  we  ourselves  are  not  absolutely  in  the  latter 
class,  we  are  still,  most  fortunately,  very  near  it.  I  cannot  find  that 
we  have  idle  hands.  The  price  of  labor  is  a  conclusive  and  unanswer- 
able refutation  of  that  idea ;  it  is  known  to  be  higher  with  us  than 
in  any  civiHzed  state,  and  this  is  the  greatest  of  all  proofs  of  general 
happiness.  Labor  in  this  country  is  independent  and  proud.  It  has 
not  to  ask  the  patronage  of  capital,  but  capital  solicits  the  aid  of 
labor.  This  is  the  general  truth  in  regard  to  the  conditions  of  our 
whole  population.  The  mere  capacity  to  labor  in  common  agricul- 
tural employments  gives  to  our  young  men  the  assurance  of  inde- 
pendence. We  have  been  asked  whether  we  will  allow  the  serfs  of 
Russia  and  Sweden  the  benefit  of  making  iron  for  us  ?  Those  same 
serfs,  sir,  do  not  make  more  than  seven  cents  a  day,  and  they  work 
in  these  mines  for  that  compensation  because  they  are  serfs.  Have 
we  any  labor  in  this  country  that  cannot  be  better  employed  than  in 
a  business  which  does  not  yield  the  laborer  more  than  seven  cents  a 
day  ?  This,  it  appears  to  me  is  the  true  question  for  our  considera- 
tion. There  is  no  reason  for  saying  that  we  will  work  iron  because 
we  have  the  mountains  that  contain  the  ore.  We  might  for  the  same 
reason  dig  among  our  rocks  for  the  scattered  grains  of  gold  and 
silver  which  might  be  found  there. 

156.     Protection  and  High  Wages^^ 

Not  only  are  wages  in  the  United  States  twice  or  three  times  the 
averages  of  Europe  and  from  ten  to  twenty  times  those  of  Asiatic 
countries,  but  our  hours  of  labor  are  the  fewest  in  the  world. 

So  far  as  can  be  learned  from  a  rough  computation  of  the  aver- 
ages in  the  United  States,  the  American  laborer  now  gets  fully  $2.50 
per  day  in  a  week  of  54  hours'  work.  If  we  should  take  the  average 
of  all  men,  women,  and  children  wage-earners  in  this  country,  it 
would  be  well  beyond  the  doUar-a-day  Une. 

The  question  then  follows :  Is  not  the  cost  of  living  proportion- 
ally more  here  than  abroad?  There  is  very  little  difference,  the 
same  things  considered,  but  the  American  lives  much  better  and  his 
needs  are  far  in  excess  of  the  foreigner's  because  of  his  education, 
his  intelligence,  and  his  tastes.    The  American  two-doUar-a-day  man 

^'Adapted  from  "Wages  and  Causes,"  in  the  American  Economist, 
XXVIII,  175  (1901). 


THE  TARIFF  PROBLEM  311 

not  only  gets  a  better  living  for  himself  and  his  family  than  the 
European  dollar-a-day  man,  but  the  American  has  another  dollar  for 
comforts,  conveniences,  luxuries,  and  pleasures  unknown  to  the 
European  laborer. 

There  must  be  some  reason  for  this  state  of  affairs,  and  this 
reason  is  the  American  system  of  protection.  That  system  tends  to 
make  us  do  practically  all  our  own  work,  keeping  our  money  at 
home  and  in  constant  circulation,  creating  and  sustaining  a  purchas- 
ing ability  that  demands  more  and  more  production,  the  very  pro- 
ducers becoming  greater  consumers  of  each  other's  products. 

We  are  not  an  agricultural  people.  We  are  not  a  manufacturing 
people.  We  are  not  a  mining  people.  Nor  are  we  fishermen  ox 
foresters.  We  are  productive  people,  and  our  productions  include 
every  need  of  man  and  nearly  every  luxury.  Our  small  surplus  is 
readily  sold  abroad,  and  to  a  greater  extent  than  our  purchases. 

This  is  the  American  system  of  protection.  This  is  the  reason  for 
American  wages  and  the  cause  of  American  habits  and  ways  of 
living.  Our  diversification  of  production  is  the  greatest  economic 
leaven  of  our  almost  immeasurable  loaf  of  prosperity.  There  is 
only  one  thing  that  will  permanently  lessen  it — a  reduction  of  wages 
made  necessary  by  a  repeal  of  one  or  more  tariff  schedules  bringing 
us  into  competition  with  the  dollar-a-day  labor  of  Europe  and  the 
dime-a-day  labor  of  Asia.  Nor  does  the  whole  chain  of  interde- 
pendent industries  have  to  be  broken.  The  breaking  of  a  single  link 
will  work  irreparable  disaster.  We  must  preserve  intact  our  splendid 
American  policy  of  protection  and  its  attendant  high  wages  and 
universal  prosperity. 

157.     The  Effect  of  Industrial  Changes  on  Wages^' 

BY  ALVIN  S.  JOHNSON 

A  policy  that  draws  labor  from  the  fields  that  are  of  greater  nat- 
ural productiveness  to  fields  of  lower  natural  productiveness  tends 
to  reduce  wages. 

In  any  country  wages  are  determined  by  the  marginal  productiv- 
ity of  labor.  We  will  represent  the  various  opportunities  of  employ- 
ment that  a  country  like  the  United  States  affords  by  the  symbols, 
A,  B,  C,  and  D,  A  may  stand  for  a  group  of  industries  in  which 
we  have  exceptional  advantages  over  foreign  countries.  B  stands 
for  a  group  of  industries  in  which  our  advantages  are  less,  C  one 
in  which  they  are  still  less,  and  D  the  group  of  industries  in  which 

"■Adapted  from  Introduction  to  Economics,  359-361.     Copyright  by  D. 
»C.  Heath  &  Co.   (1909). 


312  CURRENT  ECONOMIC  PROBLEMS 

they  are  least  of  all.  When  our  population  is  so  small  that  all  our 
labor  can  be  engaged  in  the  group  represented  by  A,  wages  will  be 
at  their  maximum.  When  our  population  increases  so  that  some 
of  the  labor  will  have  to  be  set  to  work  in  group  B,  the  wages  of 
all  labor  must  decline  to  the  level  of  the  productivity  in  that  group. 
We  will  suppose  that  population  has  increased  up  to  a  point  where 
the  opportunities  represented  by  A  and  B  are  fairly  well  manned, 
and  wages  are  determined  by  the  productivity  of  labor  in  B. 

With  wages  thus  determined,  it  is  clear  that  no  employer,  with- 
out governmental  aid,  can  afford  to  hire  labor  to  exploit  the  oppor- 
tunities represented  by  C  and  D.  This  would  necessitate  paying 
labor  in  C  and  D  as  much  as  it  produces  in  B,  and  that  by  hypothe- 
sis is  more  than  it  produces  in  C  and  D. 

Now  let  us  suppose  that  a  political  party  is  in  power  which  holds 
the  belief  that  we  should  produce  everything  that  we  consume,  that 
is,  that  the  opportunities  represented  by  C  and  D  should  be  exploited 
as  well  as  those  represented  by  A  and  B.  Labor  may  be 
drawn  away  from  A  and  B.  This  involves  the  necessity  of 
compensating  entrepreneurs  in  some  way  for  the  disadvantages 
under  which  they  will  operate  in  C  and  D.  Either  wages  must 
be  reduced  in  A  and  B,  or  some  form  of  subsidy  must  be  granted 
to  C  and  D. 

The  commodities  that  the  industries  composing  C  and  D  will 
produce  have  been  hitherto,  we  assume,  obtained  from  abroad 
through  exchange  for  commodities  produced  by  A  and  B.  The  gov- 
ernment now  renders  this  difficult  by  placing  high  duties  upon  the 
former  class  of  commodities.  This  means  that  producers  in  the 
groups  A  and  B — ^both  employers  and  workmen — must  pay  higher 
prices  for  what  they  buy.  They  do  not  receive  higher  prices  for 
what  they  sell ;  in  fact,  they  receive  lower  prices,  as  this,  we  have 
seen,  is  the  effect  of  protective  duties  upon  export  industries.  It  ap- 
pears, then,  that  part  of  the  disadvantage  of  producers  in  C  and  D 
is  removed  by  reducing  wages  in  A  and  B. 

After  the  duty  has  gone  into  effect  and  the  prices  of  commodi- 
ties that  can  be  produced  by  C  and  D  have  risen  sufficiently,  en- 
terprisers will  be  able  to  hire  labor  at  the  wages  prevailing  in  A 
and  B,  and  establish  industries  in  C  and  D.  So  far  as  the  remain- 
ing laborers  in  A  and  B  buy  the  products  of  C  and  D,  the  differ- 
ence between  the  price  which  they  pay  for  those  products  and  the 
price  that  they  would  pay  if  they  were  permitted  to  import  those 
products  duty-free  is  a  tax  paid  not  to  the  government,  but  to  the 
producers  in  C  and  D,  to  enable  the  latter  to  remain  in  business. 
It  is  an  uncompensated  deduction  from  the  natural  earnings  of  the 


THE  TARIFF  PROBLEM  313 

laborers  in  A  and  B.  Their  wages  have  been  reduced.  Nor  are 
the  workers  in  C  and  D  paid  as  much,  estimated  in  purchasing 
power,  as  they  would  have  received  if  they  had  been  allowed  to 
remain  in  A  and  B  under  the  earlier  conditions.  The  net  effect 
of  the  imposition  of  the  duty  has  been  to  saddle  the  self-supporting 
industries,  A  and  B,  with  the  support  of  the  pauper  industries,  C 
and  D.  Yet  the  inventors  of  this  policy  have  the  effronter)-^  to 
tell  laborers  in  A  and  B  that  this  policy  is  the  bulwark  of  their 
high  rate  of  wages! 

The  principles  involved  in  the  illustration  may  be  stated  in  the 
following  general  terms :  Wages  in  any  country  will  be  at  the  high- 
est point  when  all  the  labor  of  that  country  is  concentrated  in  the 
industries  in  which  its  relative  advantages  over  other  countries 
are  greatest.  If  there  are  no  protective  duties  whatsoever,  em- 
ployers will,  as  a  rule,  seek  out  the  industries  in  which  their  countr>' 
has  the  greatest  relative  advantages.  Protective  duties  enable 
other  industries  to  exist,  but  only  through  taxing  the  more  pro- 
ductive industries  for  their  support.  Protection  as  a  permanent 
policy  means  a  slight  reduction  of  money  wages,  and  a  greater 
reduction  in  wages  estimated  in  purchasing  power. 


G.     THE  HISTORICAL  SETTING  OF  THE  CURRENT 
TARIFF  PROBLEM 

158.     A  Half-Century  of  Tariff  History" 

BY  HARRISON  S.  SMALLEY 

A  study  of  the  historical  setting  of  the  current  tariff  problem 
need  not  take  us  back  beyond  the  period  of  the  Civil  War.  True, 
the  tariff  had  played  a  part  in  politics  from  the  beginning,  a  part  out 
of  all  proportion  to  its  real  importance.  For  the  first  quarter-century 
of  our  national  existence  the  idea  of  protection  had  found  but 
precarious  foothold  in  our  tariff  schedules.  However,  the  natural 
protection  furnished  by  the  Napoleonic  wars  had  resulted  in  the 
establishment  of  many  manufacturing  industries,  which  had  pro- 
ceeded to  make  their  presence  known  immediately  the  war  was  over. 
The  result  had  been  a  series  of  bills  granting  relatively  high  duties 
from  1 819  and  1824  until  1846.  However,  the  South  had  opposed, 
and  the  high  level  of  duties  had,  even  in  those  days,  been  subject  to 
many  vicissitudes.     From  1846  until  the  Civil  War  the  dominant 

**Adapted  from  "A  Short  Sketch  of  American  Tariflf  History,"  in  Read- 
ings in  Political  Economy.    Privately  published  (1911). 


314  CURRENT  ECONOMIC  PROBLEMS 

theory  underlying  tariff  policy  had  been  that  of  revenue,  but  pro- 
tective features  had  not  been  entirely  abandoned.  However,  as  we 
have  said,  the  present  era  properly  begins  with  the  Civil  War.^* 

The  Morrill  law,  passed  in  1861,  raised  the  level  of  duties  quite 
substantially.  Modifications  in  duties  were  constantly  being  made 
throughout  the  conflict,  and  in  the  end  the  level  of  duties  was  very 
greatly  raised. 

Although  the  idea  of  protection  was  quite  prominent,  the  primary 
reason  for  the  increase  was  the  need  of  revenue.  The  government 
had  adopted  a  most  elaborate  policy  of  internal  taxation,  including 
taxes  on  manufactured  goods.  It  seemed  just,  therefore,  since 
American  producers  were  burdened  with  excise  duties  greatly  in- 
creasing their  costs  of  production,  to  protect  them  by  a  proportionally 
higher  tariff  duty.  In  fact,  had  this  not  been  done,  the  government's 
attempt  to  collect  revenue  in  many  cases  would  have  failed.  Ac- 
cordingly many  "compensating  duties"  were  added  to  the  already 
high  rates.  This  level  was  still  further  raised  through  the  efforts  of 
designing  congressmen,  who  found  it  easy  to  secure  duties  for 
favored  industries  under  the  pretense  of  raising  revenue. 

During  the  war  no  one  imagined  that  the  excessive  duties  would 
be  permanent.  But  the  war  passed,  and  tariffs  have  come  and  gone, 
but  still  we  have  a  general  level  of  duties  about  like  that  which 
prevailed  at  the  end  of  the  war.  Soon  after  hostilities  ceased  Con- 
gress began  to  repeal  the  special  internal  revenue  duties.  But  the 
compensating  duties,  made  necessary  by  these,  were  not  taken  off. 
So  today  we  are  still  paying  many  special  duties  designed  to  com- 
pensate manufacturers  for  duties  which  have  not  been  levied  upon 
them  for  forty  years. 

Several  reasons  may  be  assigned  for  the  failure  of  Congress 
to  reduce  the  war  tariff  after  the  close  of  the  conflict.  Its  attention 
was  largely  drawn  to  the  problems  of  reconstruction  in  comparison 
with  which,  the  tariff  was  a  minor  issue.  Again,  Southern  opinion, 
which  alone  was  favorable  to  free  trade,  was  not  strong.  Further- 
more, the  tariff  was  in  a  state  of  great  confusion,  and  its  intelligent 
revision  would  have  required  a  great  deal  of  time  and  care.  Still 
another  factor  of  a  political  character  was  probably  of  considerable 
consequence.  The  Republican  party  had  been  organized  as  a  pro- 
test against  the  spread  of  slavery.  With  the  successful  termination 
of  the  Civil  War  its  object  was  accomplished.  Hence  it  was  left 
without  a  special  reason  for  its  continued  existence.  If  the  party 
was  to  remain  a  force  in  politics  it  must  have  a  positive  platform 

**Mr.  Smalley  is  not  responsible  for  the  opening  paragraph. 


THE  TARIFF  PROBLEM  315 

on  which  to  stand.  So  the  Republican  leaders  seized  upon  protec- 
tion and  made  it  one  of  their  leading  policies.  But  most  important 
of  all,  the  protected  interests  exerted  in  the  congressional  lobbies  a 
powerful  influence  to  prevent  a  reduction  of  duties.  Indeed,  from 
that  time  to  this  the  pressure  brought  by  protected  producers  upon 
Congress  and  congressmen  has  been  the  most  serious  obstacle  in 
the  way  of  tariff  reform.  For  these  reasons  the  war  tariff  level  was 
maintained.  Within  a  few  years  the  popular  mind  became  accus- 
tomed to  high  protection  and  more  or  less  adjusted  to  it,  and  the 
lobbyists  and  representatives  of  protected  interests  found  it  relatively 
easy  to  secure  what  they  wanted  from  Congress. 

Readjustments  were,  of  course,  made;  but  they  were  more  nu- 
merous than  important.  In  1870  under  cover  of  certain  reductions 
the  duties  were  raised  on  a  large  number  of  articles.  In  1872, 
because  of  surplus  revenue,  it  was  thought  expedient  to  make  a  hori- 
zontal reduction  of  10  per  cent.  Putting  coffee  and  tea  on  the  free 
list  evidenced  the  determination  of  Congress  to  lower  revenue  rather 
than  protective  duties.  In  1875  the  tariff  was  restored  to  its  former 
level.  Because  of  a  popular  demand  and  another  excess  of  revenue 
the  schedules  were  again  revised  in  1883.  The  effort  to  satisfy  the 
popular  demand  and  at  the  same  time  to  save  the  principle  aroused 
considerable  protest.  In  1888  Cleveland  came  out  strongly  in  favor 
of  tariff  reduction. 

Viewing  their  victory  at  this  election  as  a  vindication  of  their 
policy,  the  Republicans  proceeded  to  adopt  a  new  tariff,  the  Mc- 
Kinley  Act,  which  surpassed  in  altitude  all  previous  achievements. 
How  well  the  demand  for  reducing  revenue  without  sacrificing 
favors  was  met  is  evidenced  by  their  action  in  removing  the  duty  on 
sugar,  averaging  2  cents  a  pound,  and  substituting  for  it  a  boimty  of 
2  cents  a  pound  on  all  sugar  produced  in  this  country. 

The  popular  protest  was  immediate.  In  the  election  of  1890  the 
Democrats  captured  the  House,  and  won  the  presidency  and  the 
Senate  two  years  later.  The  panic  of  1893,  which  came  while  the 
McKinley  Act  was  a  law,  and  the  troubles  over  the  coinage  of  silver^ 
for  a  time  delayed  revision.  They  also  served  to  destroy  party  unity. 
A  bill  was  passed  by  the  House  embodying  substantial  reductions. 
This,  however,  was  radically  amended  by  the  Senate,  the  Republicans 
and  a  few  bolting  Democrats  being  responsible  for  the  changes.  The 
bill  as  passed  embodied  a  series  of  duties  lower  than  those  of  the 
McKinley  bill,  but  substantially  higher  than  those  of  the  tariff  of 
1883.  President  Cleveland  was  so  displeased  that  he  allowed  the  bill 
to  become  a  law  without  his  signature. 


3i6  CURRENT  ECONOMIC  PROBLEMS 

The  act  failed  to  relieve  the  depression  following  the  panic  which 
had  been  caused  very  largely  by  the  silver  legislation  of  the  Re- 
publicans. Perhaps  no  tariff  bill  could  have  jnended  matters.  Cer- 
tainly there  was  no  threat  to  business  in  the  Wilson-Gorman  bill. 
Yet  people  began  to  blame  the  act  for  the  failure  of  business  to 
recover  from  the  panic.  The  opportune  reappearance  of  the  silver 
question  offered  the  Democrats  a  way  of  sidetracking  the  tariff.  So, 
when  Bryan  in  the  national  convention  of  1896  made  his  "cross  of 
gold"  speech,  he  wa«;  hailed  as  the  new  leader  of  the  party,  and  the 
free  coinage  of  silver  was  declared  to  be  the  paramount  issue. 

Nevertheless  the  tariff  was  not  by  any  means  lost  from  view. 
The  Republicans,  victorious  in  the  election  of  i8c)6,  felt  authorized  to 
raise  the  tariff  once  more.  In  consequence  they  passed  the  Dingley 
law  of  1897,  which  was  a  revision  upward,  restoring  the  general 
level  of  the  McKinley  Act. 

By  1900  the  Republicans  had  formulated  an  argument  which 
proved  most  effective.  It  was :  "From  1894  to  1897  we  had  a 
Democratic  tariff  and  hard  times;  from  1897  to  1900  we  have  had  a 
Republican  tariff  and  prosperity."  Some  members  of  the  party  went 
so  far  as  to  attribute  the  panic  of  1893  to  the  Wilson-Gorman  bill 
which  was  not  passed  until  more  than  a  year  later.  It  made  no 
difference  that  the  Democratic  tariff  had  been  a  high  protective 
measure.  Nor  did  it  make  any  difference  that  the  hard  times  and 
prosperity  were  due  to  a  very  large  number  of  other  causes.  Post 
hoc  is  propter  hoc.  The  Democrats  lacked  courage  to  meet  the 
issue,  and  attempted  to  use  Imperialism  as  a  shield. 

By  1904  sentiment  favorable  to  revision  had  again  begun  to 
appear.  The  rise.of  the  trusts,  the  revival  of  the  old  fear  of  monop- 
oly, and  the  knowledge  that  these  combinations  had  in  many  cases 
been  able  to  charge  high  prices  because  they  were  protected  from 
foreign  competition  gave  impetus  to  the  movement  for  tariff  reform. 
This  was  increased  by  the  growing  concern  over  the  increase  in  the 
cost  of  living.  By  1908  the  sentiment  was  so  strong  that  the 
Republicans  promised  that,  if  successful  in  the  election,  they  would 
revise  the  tariff.  The  courage  of  the  Democrats  had  returned  and 
they  demanded  downward  revision  both  in  1904  and  in  1908. 

The  result  of  the  Republican  victory  was  a  special  session  of 
Congress  in  1909,  at  which  the  Payne-Aldrich  Act  was  passed.  This 
act  decreased  many  duties  but  raised  many  others.  The  general  level 
of  the  Dingley  bill  of  1897  was  maintained.  It  permitted  no  com- 
promising of  the  protective  principle.    As  yet  it  is  not  evident  that 


THE  TARIFF  PROBLEM  317 

it  contained  changes  tending  either  to  curb  monopolies  or  to  reduce 
the  cost  of  Hving. 

159.     Recent  Tariff  History 

The  protest  against  the  Payne-Aldrich  bill  was  immediate  and 
outspoken.  At  the  biennial  election  in  1910  the  Democrats  won 
control  of  the  House  by  a  substantial  majority.  Looking  ahead  to 
the  presidential  election  of  1912,  and  sparring  for  political  advantage, 
the  majority  party  in  the  House  passed  several  bills  amending  parts 
of  the  tariflf  act.  These  lowered  duties,  particularly  on  wool  and 
products  used  on  the  farm.  A  personal  revolt  against  President 
Taft  within  his  party  added  enough  votes  to  the  Democratic  minority 
to  secure  the  passage  of  these  bills  through  the  Senate.  But,  as  was 
to  be  expected,  they  were  vetoed  by  the  President. 

In  19 1 2  the  tariff  again  became  one  of  the  main  issues  in  the 
election.  The  sentiment  for  revision  was  based  upon  a  number  of 
quite  different  considerations.  The  opposition  to  monopoly  and  a 
belief  that  by  legislation  the  government  could  furnish  relief  from 
the  high  cost  of  living  were  perhaps  dominant.  A  belief  that  the 
tariff  was  conferring  "special  favors"  upon  privileged  individuals, 
and  hence  was  contrary  to  the  spirit  of  government,  was  very  wide- 
spread. In  addition  there  was  a  substantial  demand  from  quite  a 
considerable  contingency  of  manufacturers  and  commercial  men 
favorable  to  revision.  This  demand  was  to  a  considerable  extent 
due  to  the  changed  industrial  position  of  the  country.  The  era  of 
prosperity  through  which  we  had  passed  had  led  to  an  enlargement 
of  many  plants  to  a  point  where  they  could  supply  much  more  than 
the  domestic  demand  for  their  commodities.  Since  these  businesses 
were  in  the  stage  of  diminishing  costs,  they  were  anxious  to  find 
wider  markets.  Realizing  that  foreign  trade  is  reciprocal,  the  manu- 
facturers involved  were  aiming  to  create  a  domestic  demand  for 
additional  foreign  products  in  order  that  foreigners  might  have 
claims  with  which  to  buy  American  goods.  Consequently  some 
manufacturers  who,  in  1897,  when  the  fight  was  for  the  domestic 
market,  favored  high  duties,  in  19 12  were  found  demanding  lower 
duties.  This  sentiment  was  strengthened  by  a  feeling  that  in  some 
branches  protection  was  no  longer  necessary.  This  demand  from 
manufacturers  is  significant  because  of  its  evidence  of  a  change  in 
America's  position  in  international  trade. 

Although  division  in  Republican  ranks  was  instrumental  in  giving 
Wilson  an  unprecedented  vote  in  the  electoral  college,  and  in  securing 
for  the  Democrats  control  of  the  Senate  and  House,  there  is  little 


3i8  CURRENT  ECONOMIC  PROBLEMS 

w 

doubt  that  the  country  at  large  stood  committed  to  a  downward 
revision  of  the  tariff.  This  was  undertaken  at  a  special  session  of 
Congress  and  culminated  in  the  act  of  October  3,  1913.  The  making 
of  no  tariff  bill  in  two  generations  was  less  influenced  by  the  repre- 
sentatives of  special  interests  sent  to  Washington.  The  bill  was  not 
extreme,  but  represented  a  genuine  attempt  to  reduce  duties.  Its 
most  significant  changes  were  in  putting  wool  on  the  free  list  imme- 
diately and  sugar  at  the  end  of  two  and  a  half  years.  The  former 
was  a  result  of  the  popular  agitation  against  the  notorious  Schedule 
K  of  the  Payne-Aldrich  Act.  With  free  wool  went  the  removal  of 
the  specific  compensatory  duties  on  woolens,  as  well  as  the  specific 
duties  on  cottons  and  silks.  Iron  ore,  pig  iron,  steel  rails,  and  agri- 
cultural implements  were  all  put  on  the  free  list.  The  act  substituted 
many  ad  valorem  for  specific  duties.  But,  since  the  reductions  were 
in  many  cases  upon  articles  which  we  habitually  export,  they  were 
nominal  rather  than  real.  The  reduction  of  duties  on  agricultural 
products  is  a  case  in  point. 

In  general  the  tariff  seems  neither  to  have  justified  its  friends  nor 
its  enemies.  It  has  not  reduced  prices;  nor  has  it  led  to  a  closing 
of  industries  and  general  unemployment.  Its  effects,  if  effects  it 
has  had,  have  been  so  merged  with  those  of  numerous  other  active 
factors,  particularly  those  of  the  European  war,  that  they  cannot 
be  isolated.  It  was  not  expected  that  the  act  would  result  in  any 
immediate  extension  of  foreign  markets.  Custom  and  habit  are  too 
strong,  and  the  spirit  of  business  enterprise  a  little  too  slow  for  that. 
Whatever  effect  it  may  have  had  in  sending  American  goods  abroad 
has  lost  its  identity  in  the  general  stream  of  causes  affecting  trade 
which  have  come  in  the  train  of  the  European  struggle.  The  stalwart 
Republicans  are  attributing  current  bad  industrial  conditions  to 
tariff  tinkering.  The  financial  papers,  however,  are  not  demanding 
upward  revision.  Their  demand  just  now  is  for  business  to  be  let 
alone.  At  present  there  seems  to  be  no  strong  sentiment  in  favor  of 
upward  revision.  It  is,  perhaps,  premature  to  express  the  hope  that 
the  tariff  question  is  settled,  and  is  a  matter  of  history.  The  old 
sectional  clash,  intensified  by  an  industrial  struggle  between  the 
interests  which  demand  foreign  markets  and  the  industries  which 
still  wish  domestic  protection,  is  too  strong  for  that.  The  questions 
of  the  distribution  of  wealth  between  classes  will  also  serve  to  keep 
it  alive.  Yet,  since  we  are  coming  to  grapple  with  the  more  vital 
problems  of  a  full-grown  industrial  system,  it  seems  safe  to  say  it 
will  never  again  have  the  importance  which  it  has  had  in  the  past. 


THE  TARIFF  PROBLEM  319 

160.    What  a  Tariff  Bill  Is  Like" 
Section  I. 
Schedule  A. — Chemicals,  Oils  and  Paints. 

I.  Acids :  Boracic  acid,  ^  cent  per  pond ;  citric  acid,  5  cents 
per  pound;  formic  acid,  i^  cents  per  pound;  gallic  acid,  6  cents  per 
pound;  lactic  acid,  i^  cents  per  pound;  oxalic  acid,  lYz  cents  per 
pound ;  pyrogallic  acid,  12  cents  per  pound ;  salicylic  acid,  2j/^  cents 
per  pound ;  tannic  acid  and  tannin,  5  cents  per  pound ;  tartaric  acid, 
3^  cents  per  pound;  all  other  acids  and  acid  anhydrides  not 
specially  provided  for  in  this  section,  15  per  centum  ad  valorem. 

5.  Alkalies,  alkaloids,  and  all  chemical  and  medicinal  com- 
pounds, preparations,  mixtures  and  salts,  and  combinations  thereof 
not  specially  provided  for  in  this  section,  15  per  centum  ad  valorem. 

19.     Chlorofonn,  2  cents  per  pound, 

48.  Perfumery,  including  cologne  and  other  toilet  waters, 
articles  of  perfumery,  whether  in  sachets  or  otherwise,  and  all 
preparations  used  as  applications  to  the  hair,  mouth,  teeth,  or  skin, 
such  as  cosmetics,  dentifrices,  including  tooth  soaps,  paste,  including 
theatrical  grease  paints,  and  pastes,  pomades,  powders  and  other 
toilet  preparations,  all  the  foregoing,  if  containing  alcohol,  40  cents 
per  pound  and  60  per  centum  ad  valorem ;  if  not  containing  alcohol, 
60  per  centum  ad  valorem;  floral  or  flower  water  containing  no 
alcohol,  not  specially  provided  for  in  this  section,  20  per  centvun  ad- 
valorem. 

Schedule  B. — Earth,  Earthenware  and  Glassware, 

74.  Plaster  rock  or  gypsum,  crude,  ground  or  calcined,  pearl 
hardening  for  paper  makers'  use;  white,  non-staining  Portland  ce- 
ment, Keene's  cement  or  other  cement  of  which  gypsum  is  the  com- 
ponent material  of  chief  value,  and  all  other  cements  not  specially 
provided  for  in  this  section,  10  per  centum  ad  valorem. 

91.  Spectacles,  eyeglasses  and  goggles,  and  frames  for  the 
same,  or  parts  thereof,  finished' or  unfinished,  35  per  centum  ad 
valorem. 

99.  Freestone,  granite,  sandstone,  limestone,  lava,  and  all  other 
stone  suitable  for  use  as  monumental  or  building  stone,  except 
marble,  breccia,  and  onyx,  not  specially  provided  for  in  this  section, 
hewn,    dressed,   or   polished,   or   otherwise   manufactured,   25    per 

** Adapted  from  The  Tariff  Act  of  October  3,  191 3,  1-93.  The  repro- 
duction of  the  act  in  its  entirety  would  require  about  one  hundred  pages  of 
the  size  of  this  one. 


320  CURRENT  ECONOMIC  PROBLEMS 

centum  ad  valorem ;  unmanufactured,  or  not  dressed,  hewn,  or  pol- 
ished, 3  cents  per  cubic  foot. 

100.     Grindstones,  finished  or  unfinished,  $1.50  per  ton. 

Schedule  C. — Metals  and  Manufactures  of, 

102. — Chrome  or  chromium  metal,  ferrochrome  or  ferrochro- 
mium,  ferromolybdenum,  ferrophosphorus,  ferrotitanium,  ferro- 
tungsten,  ferrovanadium,  molybdenum,  titanium,  tantalum,  tung- 
sten or  wolfram  metal,  and  ferrosilicon,  and  other  alloys  used  in 
the  manufacture  of  steel,  not  specially  provided  for  in  this  section, 
15  per  centum  ad  valorem. 

1 10.  Steel  bars,  and  tapered  or  beveled  bars ;  mill  shafting ; 
pressed,  sheared,  or  stamped  shapes,  not  advanced  in  value  or  con- 
dition by  any  process  or  operation  subsequent  to  the  process  of 
stamping ;  hammer  molds  or  swaged  steel ;  gun-barrel  molds  not  in 
bars;  all  descriptions  and  shapes  of  dry  sand,  loam,  or  iron  molded 
steel  castings,  sheets,  and  plates;  all  the  foregoing,  if  made  by  the 
Bessemer,  Siemens-Martin,  open-hearth,  or  similar  processes,  not 
containing  alloys,  such  as  nickel,  cobalt,  vanadium,  chromium,  tungs- 
ten or  wolfram,  molybdenum,  titanium,  iridium,  uranium,  tantalum, 
boron,  and  similar  alloys,  8  per  centum  ad  valorum;  steel  ingots, 
cogged  ingots,  blooms  and  slabs,  die  blocks  or  blanks ;  billets  and 
bars  and  tapered  or  beveled  bars;  pressed,  sheared,  or  stamped 
shapes  not  advanced  in  value  or  condition  by  any  process  or  opera- 
tion subsequent  to  the  process  of  stamping ;  hammer  molds  or 
swaged  steel ;  gun-barrel  molds  not  in  bars ;  alloys  used  as  substi- 
tutes for  steel  in  the  manufacture  of  tools;  all  descriptions  and 
shapes  of  dry  sand,  loam,  or  iron  molded  castings,  sheets,  and  plates ; 
rolled  wire  rods  in  coils  or  bars  not  smaller  than  twenty  one-hun- 
dredths  of  one  inch  in  diameter,  and  steel  not  specially  provided  for 
in  this  section,  all  the  foregoing  when  made  by  the  crucible,  electric, 
or  cementation  process,  either  with  or  without  alloys,  and  finished 
by  rolling,  hammering,  or  otherwise,  and  all  steels  by  whatever 
process  made,  containing  alloys  such  as  nickel,  cobalt,  vanadium, 
chromium,  tungsten,  wolfram,  molybdenum,  titanium,  iridium,  ura- 
nium, tantalum,  boron,  and  similar  alloys,  15  per  centum  ad  valorem. 

Schedule  E. — Sugar,  Molasses,  and  Manufactures  of. 

177.     Sugars,  tank  bottoms,  sirups  of  cane  juice,  melada,  con- 
centrated melada,  concrete  and  concentrated  molasses,  testing  by 
the  polariscope  not  above  seventy-five   degrees,   seventy-one   one- 
hundredths  of  i  per  cent  per  pound,  and  for  every  additional  dc 
gree  shown  by  the  polariscopic  test,  twenty-six  one-thousandths  of 


THE  TARIFF  PROBLEM  321 

I  cent  per  pound  additional,  and  fractions  of  a  degree  in  propor- 
tion;  molasses  testing  not  above  forty  degrees,  15  per  centum  ad 
valorem ;  testing  above  forty  degrees  and  not  above  fifty-six  de- 
grees, 2%  cents  per  gallon ;  testing  above  fifty-six  degrees,  4^ 
cents  per  gallon ;  sugar  drainings  and  sugar  sweepings  shall  be  sub- 
ject to  duty  as  molasses  or  sugar,  as  the  case  may  be,  according  to 
polariscopic  test :  Provided,  That  the  duties  imposed  in  this  para- 
graph shall  be  effective  on  and  after  the  first  day  of  March,  nine- 
teen hundred  and  fourteen,  until  which  date  the  rates  of  duty  pro- 
vided by  paragraph  two  hundred  and  sixteen  of  the  tariff  Act  ap- 
proved August  fifth,  nineteen  hundred  and  nine,  shall  remain  in 
force :  Provided,  however,  That  so  much  of  paragraph  two  hundred 
and  sixteen  of  an  Act  to  provide  revenue,  equalize  duties,  and  en- 
courage the  industries  of  the  United  States,  and  for  other  purposes, 
approved  August  fifth,  nineteen  hundred  and  nine,  as  relates  to  the 
color  test  denominated  as  Number  Sixteen  Dutch  standard  in  color, 
shall  be  and  is  hereby  repealed:  Provided  further.  That  on  and 
after  the  first  day  of  May,  nineteen  hundred  and  sixteen,  the  articles 
hereinbefore  enumerated  in  this  paragraph  shall  be  admitted  free  of 
duty. 

Schedule  G. — Agricultural  Products  and  Provisions. 

188.     Barley,  15  cents  per  bushel  of  forty-eight  pounds. 

193.  Rice,  cleaned,  i  cent  per  pound ;  uncleaned  rice,  or  rice 
free  of  the  outer  hull  and  still  having  the  inner  cuticle  on,  ^  of  i 
cent  per  pound. 

195.  Butter  and  butter  substitutes,  2^  cents  per  pound. 

196.  Cheese  and  substitutes  therefor,  20  per  centum  ad  valorem. 

205.  Hay,  $2  per  ton. 

206.  Honey,  10  cents  per  gallon. 

213.  Straw,  50  cents  per  ton. 

214.  Teazels,  15  per  centum  ad  valorem. 

Schedule  N. — Sundries. 

341.  Dice,  dominoes,  draughts,  chessmen,  chess  balls,  and  bil- 
liard, pool,  bagatelle  balls,  and  poker  chips,  of  ivory,  bone,  or  other 
materials,  50  per  centum  ad  valorem. 

347.  Feathers  and  downs,  on  the  skin  or  otherwise,  crude  or 
not  dressed,  colored,  or  otherwise  advanced  or  manufactured  in  any 
manner,  not  specially  provided  for  in  this  section,  20  per  centum  ad 
valorem ;  when  dressed,  colored,  or  otherwise  advanced  or  manu- 
factured in  any  manner,  and  not  suitable  for  use  as  millinery  orna- 
ments, including  quilts  of  down  and  manufactures  of  down,  40  pet 


$22  CURRENT  ECONOMIC  PROBLEMS 

centum  ad  valorem;  artificial  or  ornamental  feathers  suitable  for 
use  as  millinery  ornaments,  artificial  and  ornamental  fruits,  grain's 
leaves,  flowers,  and  stems  or  parts  thereof,  of  whatever  material 
composed,  not  specially  provided  for  in  this  section,  60  per  centum 
ad  valorem ;  boas,  boutonnieres,  wreaths,  and  all  articles  not  specially 
provided  for  in  this  section,  composed  wholly  or  in  chief  value  of 
any  of  the  feathers,  flowers,  leaves,  or  other  material  herein  men- 
tioned, 60  per  centum  ad  valorem:  Provided,  That  the  importation 
of  aigrettes,  egret  plumes  or  so-called  osprey  plumes,  and  the  feath- 
ers, quills,  heads,  wings,  tails,  skins,  or  parts  of  skins,  of  wild  birds 
either  raw  or  manufactured,  and  not  for.  scientific  or  educational 
purposes,  is  hereby  prohibited ;  but  this  provision  shall  not  apply  to 
the  feathers  or  plumes  of  ostriches,  or  to  the  feathers  or  plumes 
of  domestic  fowls  of  any  kind. 

Free  List. 

387.  Acids :  Acetic  or  pyroligneous,  arsenic  or  arsenious,  car- 
bolic, chromic,  fluoric,  hydrofluoric,  hydrochloric  or  muriatic,  nitric, 
phosphoric,  phthalic,  prussic,  silicic,  sulphuric  or  oil  of  vitriol,  and 
valerianic. 

389.     Acorns,  raw,  dried  or  undried,  but  unground. 

391.  Agricultural  implements:  Plows,  tooth  and  disk  harrows, 
headers,  harvesters,  reapers,  agricultural  drills  and  planters,  mowers, 
horserakes,  cultivators,  thrashing  machines,  cotton  gins,  machinery 
for  use  in  the  manufacture  of  sugar,  wagons  and  carts,  and  all  other 
agricultural  implements  of  any  kind  and  description,  whether  spe- 
cifically mentioned  herein  or  not,  whether  in  whole  or  in  parts,  in- 
cluding repair  parts. 

407.     Ashes,  wood  and  lye  of,  and  beet-root  ashes. 

457.     CoflFee. 

512.  Ice. 

513.  India  rubber,  crude,  and  milk  of,  and  scrap  or  refuse  india 
rubber,  fit  only  for  remanufacture. 

586.     Rags,  not  otherwise  specially  provided  for  in  this  section. 

652.  Original  paintings  in  oil,  mineral,  water,  or  other  colors, 
pastels,  original  drawings  and  sketches  in  pen  and  ink  or  pencil  and 
water  colors,  artists'  proof  etchings  unbound,  and  engravings  and 
woodcuts  unbound,  original  sculptures  or  statuary,  including  not 
more  than  two  replicas  or  reproductions  of  the  same. 

Section  IV. 

I.  That  all  goods,  wares,  articles,  and  merchandise  manufac- 
tured wholly  or  in  part  in  any  foreign  country  by  convict  labor  shall 
not  be  entitled  to  entry  at  any  of  the  ports  of  the  United  States. 


THE  TARIFF  PROBLEM  323 

J.  Subsection  7.  That  a  discount  of  5  per  centum  on  all  duties 
imf>osed  by  this  Act  shall  be  allowed  on  such  goods,  wares,  and 
merchandise  as  shall  be  imported  in  vessels  admitted  to  registration 
under  the  laws  of  the  United  States :  Provided,  that  nothing  in  this 
sub-section  shall  be  so  construed  as  to  abrogate  or  in  any  manner 
impair  or  affect  the  provisions  of  any  treaty  concluded  between  the 
United  States  and  any  foreign  nation. 


H.    THE  ARGUMENT  FROM  EXPERIENCE 
161.     Protection  and  Prosperity^' 

BY  ROBERT  KLUS  THOMPSON 

The  policy  of  protection  is  challenged  now  to  justify  itself  by  its 
works  at  the  bar  of  public  opinion.  We  are  not  afraid  of  that  test. 
We  ask  your  attention  to  its  broad  results. 

It  has  raised  the  average  of  our  national  wealth  from  $514  a 
head  (slaves  included)  in  1850,  to  $870  a  head  in  1880. 

It  has  increased  the  value  of  our  manufactures  five  hundred  per 
cent,  and  that  of  our  foreign  commerce  in  the  same  ratio,  while  the 
commerce  of  England  increased  but  three  hundred  and  fifty  per  cent. 

It  has  secured  higher  wages  to  our  workmen  and  better  prices 
to  our  farmers,  without  increasing  to  either  the  cost  of  staple  manu- 
factures, as  is  shown  by  comparing  the  prices  of  textiles  and  hard- 
wares before  and  since  i860. 

It  has  diversified  our  industries  and  raised  our  people  out  of  that 
uniformity  of  occupation  which  is  the  mark  of  a  low  industrial  devel- 
opment. 

It  has  stimulated  inventions  and  improvements  to  the  degree  that 
some  of  the  great  staples  of  necessary  use  have  been  permanently 
cheapened  to  the  whole  world. 

It  has  drawn  the  different  sections  of  the  country  into  closer  bus- 
iness relations,  and  has  interlaced  the  great  trunk  lines  of  railroad 
to  the  West  with  others  running  Southward. 

It  has  brought  the  foreign  artizan  across  the  ocean,  and  has  nat- 
uralized his  craft  on  our  shores,  whereas  Free  Trade  would  have 
brought  his  work  only. 

It  has  made  us  as  regards  the  great  staples  independent  of  all 
other  countries  in  case  of  war,  while  it  has  consolidated  the  national 

"Adapted  from  Protection  to  Home  Industry,  57-58  (1886).  The 
student  can  easily  find  for  himself  a  contemporary  reading  making  prac- 
tically the  same  argument. 


324  CURRENT  ECONOMIC  PROBLEMS 

unity  and  increased  the  national  strength  to  a  degree  that  makes  the 
rest  of  mankind  anxious  to  be  at  peace  with  us. 

It  has  created  a  sentiment  in  favor  of  this  policy  so  powerful 
that  no  political  party  ventures  to  oppose  it  openly,  and  such  that 
the  friends  of  Free  Trade  are  hardly  heard  in  our  national  cam- 
paigns. 

162.     American  Free  Trade  and  American  Prosperity" 
BY  ge;orge  bade;n-powe;l,l 

It  is  no  long  task  to  show  that  the  prosperity  of  the  United  States 
exists  in  spite  of,  and  not  because  of.  Protection.  So  seldom  do  we 
remember  that  absolute  Free  Trade  has  been  long  and  firmly  estab- 
lished throughout  the  United  States,  and  that  it  exerts  an  influence 
many,  many  times  greater  than  that  exerted  by  Protection.  Free 
Trade  reigns  absolute  and  supreme  within  the  frontiers  of  the  United 
States.  The  full  import  of  this  fact  is  seen  when  we  remember  that 
the  rapidly  increasing  population  imports  from  abroad  only  one- 
quarter  of  the  value  of  the  goods  that  the  British  Isles  import.  And 
the  vast  and  important  home  market  of  so  very  large  and  so  very 
self-dependent  a  population  is  regulated  entirely  on  principles  of 
absolute  Free  Trade. 

The  importance  of  this  fact  is  all  the  more  evident  if  we  remem- 
ber that  the  United  States  is  about  as  large  as  Europe,  but  with  only 
one-seventh  of  the  population.  We  have  indeed  a  territory  equalling 
Europe  in  extent  and  in  variety  of  soil,  climate,  and  product.  But 
properly  to  picture  the  case  we  must  sweep  out  of  Europe  all  the 
English,  Dutch,  Danes,  Swedes,  Germans,  Russians,  Austrians,  Ital- 
ians, Swiss,  Spaniards,  Portugese,  and  Turks,  and  then  distribute 
and  settle  over  the  whole  area  of  Europe  the  population  of  France 
and  Belgium  only.  Then  if  we  add  to  such  distribution  of  population 
perfect  freedom  of  interchange  of  products  all  over  this  Europe,  we 
will  have  a  picture  of  the  condition  of  the  United  States  at  the  pres- 
ent day.  It  has  been  the  dream  of  Cobden's  disciples  to  extend 
Free  Trade  over  Europe.  America  has  long  ago  and  definitely  es- 
tablished Free  Trade  over  an  area  equalling  that  of  Europe. 

It  is  evident  that  the  prosperity  in  the  United  States  is  due  to 
this  freedom  of  exchange  and  the  comparative  paucity  of  the  peo- 
ple engaged  in  the  highly  profitable  task  of  developing  vast  virgin 
resources.    Of  a  truth  the  United  States  is  a  glaring  instance  of  the 

'■'Adapted  from  State  Aid  and  State  Interference,  32-37.  Copyright  by 
Chapman  &  Hall. 


i 


THE  TARIFF  PROBLEM  325 

high  economic  value  of  Free  Trade.  Protection,  influencing  only 
by  means  of  a  comparatively  insignificant  import  trade,  is  but  a 
weakly  drag  on  this  prosperity.  It  occupies  an  altogether  subordi- 
nate position  as  the  direct  factor  for  or  against  this  prosperity. 

163.     Free  Trade  and  Prosperity^* 

HOW  WORKMEN'S  WAGES  HAVE  GONE  UP 
SINCE  1880 


The  increase  in  wages  in  the  chief  industries  throughout  the  United 
Kingdom  in  the  last  20  years,  according  to  the  Third  Fiscal  Blue  Book 
(p.  212),  has  been  as  follows: 

Agriculture       -  -  -  - 

Building  Trades  -  _  _ 

Coal  Mining     -  -  -  - 

Engineering      -  -  -  - 

Textiles   -        -  -  -  - 


10 

per  cent 

17 

(( 

52 

(( 

15 

It 

22 

u 

FREE  TRADE  MEANS  AN  INCREASE  IN  YOUR  WAGES 


FREE  TRADE   GIVES  US  THE   FOREIGNER'S   JOB 


One  of  the  most  absurd  posters  issued  by  the  Tariff  Reformers  was 
one  in  which  a  British  Workman  was  supposed  to  say:  "The  Foreigner 
has  got  my  job." 

THAT  POSTER  IS  A  FRAUD 

It  is  the  Foreigner  who  provides  jobs  for  British  Workmen! 


FOR  EVERY  £1  OF  MANUFACTURED  GOODS  IMPORTED  INTO 
THIS  COUNTRY  OVER  £2  WORTH  ARE  SENT  ABROAD 

**Adapted  from   Wages,  Food  Prices,  and  Savings,  a  pamphlet  used  by 
the  Liberal  party  in  the  English  Parliamentary  campaign  in   1909-1910. 


326  CURRENT  ECONOMIC  PROBLEMS 

THE  WORLD  BANKS  IN  BRITAIN 


Under  Free  Trade  Great  Britain  is  the  Banking  Centre  of  the  "World 


The  growth  of  British  Banking  may  be  measured  by  the  value  of 
the  business  transacted  during  the  last  40  years. 

Here  are  the  figures  of  the  Bankers  Clearing  House  Returns: 

1869  -----£  3,626,000,000 

1879  -----            4,886,000,000 

1889  -----            7,619,000,000 

1899  .        _        -        _        _            9,150,000,000 

1909  -        -        -        -        -           13,525,000,000 


FREE  TRADE  MEANS  LARGER  INCOMES 


Great  Britain's  increasing  prosperity  under  Free  Trade  is  shown  by 
the  fact  that  the  amount  raised  by  the  Income  Tax  has  steadily  increased. 
In  1882  a  tax  of  id.  in  the  £  produced 

£1,915,000 

In  1909  a  tax  of  id.  in  the  £  produced 

£2,784,000 

More  pounds  were  earned,  and  consequently  more  people  were  able 
to  pay  Income  Tax  in  1909  than  in  1882. 

Those  who  pay  Income  Tax  have  larger  Incomes  than  before. 


PROGRESS   ON   THE   RAILWAY 
EXPRESS  SPEED  TO  PROSPERITY 


The  growth  of  business  under  Free  Trade  can  be  seen  by  the  increase 
in  the  traffic  on  our  railways  as  shown  by  the  following  official  figures: 

PASSENGER  TRAFFIC  RECEIPTS 

1880  _.--.-  £27,200,000 

1890  -_-..-  34,300,000 

1900  ------  45,400,000 

1909  ------  51,200,000 


THE  TARIFF  PROBLEM  327 

GOODS  TRAFFIC  RECEIPTS 

1880  ------  £35,700,000 

1890  ------  42,200,000 

1900 53,500,000 

1909 59,500,000 

THE  NUMBER  OF  RAILWAY  SERVANTS  EMPLOYED  HAS  INCREASED 
FROM  398,000  IN  1897  TO  NEARLY  500,000  IN  1909 

THE  PROFITS   OF  RAILWAYS   HAVE   INCREASED   FROM  £38,000,000 
IN  1895,  TO  £45,136,000  IN  1909 

I.     THE  IMPRACTICABLE  NATURE  OF  PROTECTION 
164.     A  Humble  Request  of  Congress^^ 

Resolved,  That  the  mutuality  of  the  interests  of  the  wool  pro- 
ducers and  wool  manufacturers  of  the  United  States  is  established 
by  the  closest  of  commercial  bonds,  that  of  demand  and  supply; 
it  having  been  demonstrated  that  the  American  grower  supplies 
more  than  70  per  cent  of  all  the  wool  consumed  by  American  mills, 
and,  with  equal  encouragement,  would  soon  supply  all  which  is  prop- 
erly adapted  to  production  here ;  and  further,  it  is  confirmed  by  the 
experience  of  half  a  century  that  the  periods  of  prosperity  and 
depression  in  the  two  branches  of  the  woolen  industry  have  been 
identical  in  time  and  induced  by  the  same  general  causes. 

Resolved,  That  as  the  two  branches  of  agricultural  and  manu- 
facturing industry  represented  by  the  woolen  interest  involve  largely 
the  labor  of  the  country,  whose  productiveness  is  the  basis  of 
national  prosperity,  sound  policy  requires  such  legislative  action  as 
shall  place  them  on  an  equal  footing,  and  give  them  equal  encour- 
agement and  protection  in  competing  with  the  accumulated  capital 
and  low  wages  of  other  countries. 

Resolved,  That  the  benefits  of  a  truly  national  system,  as  applied 
to  American  industry,  will  be  found  in  developing  manufacturing 
and  agricultural  enterprise  in  all  the  States,  thus  furnishing  markets 
at  home  for  the  products  of  both  interests ;  and 

Resolved,  further.  That  it  is  the  sense  of  this  meeting  that  in 
the  coming  revision  of  the  tariff  the  present  duties  both  on  wool 
and  woolen  goods  be  maintained  without  reduction. 

'•Resolutions  of  the  National  Wool  Growers'  Association  and  National 
Association  of  Wool  Manufacturers,  Hearings  of  the  Ways  and  Means 
Committee  of  the  House  of  Representatives,  60th  Cong.,  2d  sess.,  House 
Document  143.  533i   (1909). 


328  CURRENT  ECONOMIC  PROBLEMS 

165.     Woolens  and  Welfare^*' 

BY  N.  T.  FOLWELL 

Unlike  the  iron  and  steel  industry,  where  machinery  manufac- 
ture cheapens  the  cost  of  production,  the  manufacturer  of  worsted 
and  woolen  textiles  has  no  advantage  over  his  European  competitor 
in  quantity  produced;  man  for  man,  loom  for  loom,  the  production 
is  the  same.  The  climate  of  England,  France  and  Germany  is 
better  adapted  for  spinning  than  ours,  and  they  can  spin  finer  yam 
from  the  same  grade  of  wool  than  we  can  here,  and  consequently 
can  run  their  spinning  frames  at  a  higher  rate  of  speed,  thus  getting 
greater  production.  The  oft-repeated  story  that  an  American 
workman  can  produce  more  than  his  brother  abroad  is  false  as  far 
as  the  worsted  and  woolen  trade  is  concerned. 

Our  mills  have  been  at  a  high  cost  of  labor  and  materials  and 
are  partially  filled  with  machinery  that  has  paid  a  duty  of  from  30 
to  60  per  cent.  All  the  numerous  articles  which  go  to  equip  a  mill 
have  cost  from  30  to  50  per  cent  more  than  the  amount  required 
abroad. 

Our  wages  are  double  what  are  paid  in  England  and  three  times 
the  amount  paid  in  France  and  Germany. 

There  is  no  reason  why  the  rates  of  duty  should  be  lowered 
on  worsted  and  woolen  textiles,  as  conditions  which  prevail  today 
are  no  different  from  those  which  prevailed  at  the  time  the  Dingley 
bill  became  a  law,  with  one  exception,  namely  our  wages  have  in- 
creased. 

We  are  importing  from  two  to  three  million  dollars  per  week, 
foreign  cost,  of  dry  goods,  and  this  fact  is  conclusive  proof  that  the 
tariff  should  be  raised  rather  than  lowered. 

166.     A  Recipe  for  Securing  Duties^^ 

Elsmere,  April  4,  1897. 

Dear  Mr.  Whitman :  Now  about  the  tariff.  I  cannot,  after  what 
has  been  said  to  me  in  reference  to  my  confidential  relations  with 
the  committee,  keep  you  posted  as  I  would  like  to  do.  .  .  Let 
me  ask  you  a  question.    Should  tops  at  a  24-cent  line  have  the  same 

'"Adapted  from  Hearings  of  the   Ways  and  Means   Committee,  ibid., 

5341    (1909).  . 

"^Adapted  from  Hearings  of  the  Ways  and  Means  Committee,  ibid., 
5492-5493. 


THE  TARIFF  PROBLEM  329 

compensatory  duty  as  yams  at  a  30-cent  line  ?  Should  tops  at  a  24- 
cent  line  have  a  compensation  duty  of  27^/2  cents?  .  .  I  do  not 
want  you  to  intimate  to  any  Senator  that  I  have  written  you  on 
this  subject.  I  am  kept  at  work  from  10  A.  M.  until  midnight  and 
I  have  not  sufficient  clerical  assistance  as  yet.  I  am  the  only  person 
whom  the  committee  allows  at  its  meetings. 

Truly  yours, 

S.  N.  D.  North. 

Boston,  June  2,  1897. 
My  dear  Mr.  North :  We  all  depend  upon  you  to  watch  closely 
our  interests,  to  see  that  nothing  is  overlooked  or  neglected  by  our 
friends  on  the  committee.  I  have  no  doubt  they  will  do  all  they 
can  do,  but  with  so  many  interests  to  look  after,  our  special  repre- 
sentative must  see  to  it 'that  our  interests  receive  proper  attention. 

Yours  very  truly, 

William  Whitman. 

167.    The  Tariff  a  Local  Issue*'' 

Local  interests,  rather  than  fundamental  considerations  of  prin- 
ciple, are  the  motives  determining  the  attitude  of  the  average  con- 
gressman on  the  tariff.  He  is  supremely  concerned  with  securing 
for  the  favored  interests  of  his  own  district  all  the  protection  pos- 
sible. His  concern  for  interests  in  other  districts  is  a  mere  means 
to  this  more  important  end.  Alone  he  can  accomplish  nothing.  He 
is  perforce  compelled  to  favor  duties  on  articles  produced  elsewhere 
in  order  that  he  may  secure  what  he  desires.  As  a  result  a  struggle 
over  a  tariff  is  by  no  means  an  attempt  properly  to  apply  fundamental 
and  well-recognized  principles  to  particular  situations.  It  is  rather 
an  attempt  to  reconcile  a  conflict  of  a  multitude  of  local  and  indus- 
trial interests. 

The  following  typical  proposals  will  give  a  fair  idea  of  the  raw 
material  out  of  which  the  tariff  bill  of  1909  was  constructed.  They 
w^ill  also  throw  some  light  upon  the  logic  of  the  process  by  means  of 
which  the  bill  finally  assumed  form.  A  Massachusetts  Republican 
demanded  that  hides  be  put  on  the  free  list.  A  Texas  Democrat 
insisted  that  the  duty  on  hides  be  raised.  A  South  Carolina  Demo- 
crat demanded  a  protective  duty  on  rice.  Free  coal  was  pronounced 
by  a  Pennsylvania  Republican  to  be  a  repudiation  of  the  policy  of 
protection.     Several   representatives,   from  different  parts   of  the 

**The  evidence  upon  which  this  reading  is  based  is  all  taken  from  The 
Congressional  Record.  1909. 


330  CURRENT  ECONOMIC  PROBLEMS 

country,  pleaded  for  higher  duties  on  glass.  Senators  from  the 
Rocky  Mountain  states  dwelt  upon  the  importance  of  protection  of 
wool.  The  representatives  from  California  demanded  protection  on 
lemons.  A  Democratic  senator  from  Texas  demanded  a  high  duty 
on  lumber.  A  Michigan  Republican  argued  as  ardently  for  a  duty 
on  sugar.  A  congressman  from  New  York  insisted  that  a  duty  on 
postcards  would  even  things  with  Germany.  Only  one  man  was 
patriotic  enough  to  want  to  apply  the  principle  of  protection  without 
the  slightest  reservation.  An  Iowa  congressman  rose  to  the  occasion 
by  pleading  that  selfishness  should  be  laid  aside,  that  all  should  forget 
local  and  personal  interests,  that  America  should  be  the  matter  of 
first  concern,  and  that  the  new  tariff  should  be  framed  in  such  a  way 
as  adequately  and  equally  to  protect  all  industries. 

Senator  Knute  Nelson,  of  Minnesota,  a  protectionist  and  a 
Republican,  summed  up  the  situation  in  these  words :  "I  am  tired 
of  being  lectured  to  about  these  schedules,  and  about  the  orthodoxy 
of  the  Republican  party.  Let  us  recognize  the  fact  that  with  a 
tariff  bill  it  is  just  as  it  is  with  the  River  and  Harbor  bills.  There 
is  no  use  disguising  it.  You  tickle  me  and  I  tickle  you.  You  give 
us  what  we,  on  the  Pacific  coast,  want  for  our  lead  ore  and  our 
citrus  fruit,  and  we  will  tickle  you  people  of  New  England  and  give 
you  what  you  want  on  your  cotton  goods.  When  you  boil  down 
the  patriotism  of  the  speeches  just  made  you  come  to  the  same  basis 
as  that  of  the  River  and  Harbor  bill.  You  vote  for  my  creeks, 
you  vote  for  my  harbors,  you  vote  for  my  rivers,  and  I  will  vote  for 
yours,  and  it  will  be  all  right." 

1 68.     Tariff  for  Politics  Only" 

BY  PETER  FINLEY  DUNNE 

"Well,  sir,  'tis  a  gr-r-and  worruk  thim  Sinitors  and  Congressmen 
are  doin'  in  Wash'n'ton.  Me  heart  bleeds  for  the  poor  fellows, 
steamin'  away  undher  th'  majestic  tin  dome  iv  th'  capitol  thryin'  to 
rejooce  th'  tariff.  The  likes  iv  ye  want  to  see  th'  tariff  rejooced  with 
a  jack  plane.  But  th'  tariff  has  been  a  good  frind  to  some  iv  thira 
boys  an'  it's  a  frind  iv  frinds  iv  some  iv  th'  others  an'  they  don't 
intend  to  be  rough  with  it.  A  little  gentle  massage  to  rejooce  th' 
most  prom'nent  prochooberances  is  all  that  is  nicessry.  Whiniver 
they  rub  too  hard,  Sinitor  Aldhrich  says,  'Go  a  little  asier  there,  boys. 
He's  very  tender  in  some  iv  thim  schedules.    P'raps  we'd  better  give 

"Adapted  from  "The  Tariflf,"  in  Mr.  Dooley  Says,  I44-IS7.  Copyright 
by  Charles  Scribner's  Sons  (1909). 


THE  TARIFF  PROBLEM  331 

him  a  little  nourishment  to  build  him  up,'  he  says.  An'  th'  last  I 
heerd  about  it,  ye  won't  notice  anny  reduction  in  its  weight.  No,  sir, 
I  shudden't  be  surprised  if  it  was  heartier  than  iver. 

"Me  congressman  sint  me  a  copy  iv  th'  tariff  bill  th'  other  day. 
I've  been  studyin'  it  f 'r  a  week.  'Tis  a  good  piece  of  summer  lithra- 
choor.  'Tis  full  iv  action  an'  romance.  It  beats  th'  Deadwood  Dick 
series.  It  gives  ye  some  idee  iv  th'  gloryous  govermint  we're  livin' 
undher,  to  see  our  fair  Columbia  puttin'  her  brave  young  arms  out 
defindin'  th'  products  iv  our  soil  fr'm  steel  rails  to  porous  plasthers, 
hooks  an'  eyes,  artyficial  horse  hair  and  bone  casings,  which  comes 
under  th'  head  of  clothin'  an'  I  suppose  is  a  polite  name  f'r 
pantaloons. 

"Iv  coorse,  low  people  like  ye,  Hinnissy,  will  kick  because  it's 
goin'  to  cost  ye  more  to  indulge  ye'er  taste  in  ennervating  luxuries. 
D'ye  know  Sinitor  Aldhrich  ?  Ye  don't  ?  He  knows  ye.  'Tis  as  if 
he  said :  'This  here  vulgar  plutocrat,  Hinnissy,  is  turnin'  th'  heads 
iv  our  young  men  with  his  garish  display.  Befure  this,  counthries 
have  perished  because  iv  th'  ostintation  iv  th'  arrystocracy.  We  must 
presarve  th'  ideels  iv  American  simplicity.  We'll  put  a  tax  iv  sixty 
per  cent  on  ready  made  clothin'  costin'  less  thin  ten  dollars  a  suit. 
That'll  keep  Hinnissy  from  squanderin'  money  wrung  fr'm  Jawn  D. 
in  th'  roo  dilly  Pay.  We'll  make  a  specyal  assault  on  woolen  socks 
an'  cowhide  shoes.  We'll  make  an  example  iv  this  here  pampered 
babe  iv  fortune,'  says  he. 

"An'  there  it  is.  Ye  haven't  got  a  thing  on  ye'r  back  excipt  ye'er 
skin — an'  that  may  be  there ;  I  haven't  got  as  far  as  th'  hide  schedule 
yet.  It's  ye'er  own  fault.  If  ye  will  persist  in  wearin'  those  gee- 
gaws  ye'U  have  to  pay  f'r  thim.  If  ye  will  go  on  decoratin'  ye'er 
house  with  shingles  an'  paint  an'  puttin  paper  on  th'  walls,  ye've  got 
to  settle.    That's  all. 

"Ye'd  think  th'  way  such  as  ye  talk  that  ivrything  is  taxed.  It 
ain't  so.  'Tis  an  insult  to  th'  pathritism  iv  Congress  to  say  so.  Th' 
Republican  party,  with  a  good  deal  iv  assistance  fr'm  th'  pathriotic 
Dimmycrats,  has  been  thrue  to  its  promises.  Look  at  th'  free  list,  if 
ye  don't  believe  it.  Practically  ivrything  nicissry  to  existence  comes 
in  free.  What,  for  example,  says  ye.  I'll  look.  Here  it  is.  Curling 
stones.  Ye'll  be  able  to  buy  all  ye'll  need  this  summer  for  practically 
nawthin.  What  else  ?  Well,  teeth.  Here  it  is  in  th'  bill :  'Teeth 
free  iv  jooty.'  Undher  th'  Dingley  Bill  they  were  heavily  taxed. 
Onless  ye  cud  prove  that  they  had  cost  ye  less  thin  a  hundred  dollars, 
or  that  ye  had  worn  thim  f'r  two  years  in  Europe,  or  that  ye  were 
bringin'  thim  in  f'r  scientific  purposes  or  to  give  a  museem,  there 
was  an  enormous  jooty  on  teeth.    Now  ye  don't  have  to  hand  a  five 


332  CURRENT  ECONOMIC  PROBLEMS 

to  th'  inspictor  an'  whisper :  'I've  got  a  few  bicuspids  that  I  picked 
up  abroad.  Be  a  good  fellow  and  let  me  through.'  No  sir,  teeth  arc 
free. 

"What  other  nicissities,  says  ye?  Well,  there's  sea  moss,  news- 
papers, nuts,  an'  nux  vomica.  They've  removed  th'  jooty  on  Pulu. 
I  didn't  think  they'd  go  that  far.  Ye  know  what  Pulu  is,  iv  coorse, 
an'  I'm  sure  ye'll  be  glad  to  know  this  refreshin'  bev'rage  or  soap  is 
on  th*  free  list.  An'  cannary  bur-rd  seed  is  fhree.  Lookin'  down  th' 
list  I  see  that  divvy-divvy  is  free  also.  But  there  are  other  items, 
mind  ye.  Here's  some  of  them :  Apatite,  hog  bristles,  wurruks  iv 
art  more  thinn  twinty  years  old,  kelp,  marshmallows,  life  boats,  silk 
worm  eggs,  stilts,  skeletons,  turtles,  an'  leeches.  Th'  new  tariff  bill 
puts  these  family  commodyties  within  th'  reach  iv  all.  An'  yes, 
opium  is  on  th'  free  list.  Th'  tariff  bill  woulden't  be  complete  without 
that  there  item.  But  it  ought  to  read:  'Opyum  f'r  smokin'  while 
readin'  th'  tariff  bill.'  Ye  can  take  this  sterlin'  piece  of  lithrachoor  to 
a  bunk  with  ye  an'  light  a  ball  iv  hop.  Befure  ye  smoke  up  p'raps  ye 
can't  see  where  th'  tariff  has  been  rejooced.  But  aftherye've  had  a 
long  dhraw  it  all  becomes  clear  to  ye.  Ye'er  worries  about  th' 
children's  shoes  disappear  an'  ye  see  ye'ersilf  floatin'  over  a  purple 
sea,  in  ye're  private  yacht,  lulled  by  th'  London  Times,  surrounded 
be  wurruks  iv  art  more  thin  twinty  years  old,  atin'  marshmallows 
an'  canary  bur-rd  seed,  while  the  turtles  an'  leeches  frisk  on  th' 
binnacle. 

"Well,  sir,  if  nobody  else  has  read  th'  debates  on  th'  tariff  bill,  I 
have.  Th'  walls  iv  Congress  has  resounded  with  th'  loftiest  sinti- 
ments.  Hinnery  Cabin  Lodge  in  accents  that  wud  melt  the  heart  iv 
th'  coldest  manyfacthrer  iv  button  shoes  has  pleaded  f'r  freedom  f'r 
th'  skins  iv  cows.  I'm  sorry  this  appeal  wasn't  succissful.  Th'  hide 
iv  th'  pauperized  kine  iv  Europe  will  have  to  cough  up  at  th'  custom 
house  before  they  can  be  convarted  into  brogans.^*  This  pathriotic 
result  was  secured  be  th'  gallant  Sinitor  fr'm  Texas.  He's  an  ardint 
free  thrader,.  mind  ye.  He's  almost  a  slave  to  th'  principles  iv  th' 
Dimmycratic  party.  But  he's  no  blamed  bigot.  He  can  have  prin- 
ciples an'  lave  thim  alone.  An'  I  want  to  tell  ye,  me  f  rind,  that  whin 
it  comes  to  distributin'  th'  honors  f'r  this  reform  iv  th'  tariff,  don't 
fail  to  throw  a  few  flowers  at  th'  riprisentatives  iv  our  small  but 
gallant  party.  It  was  a  fine  thing  to  see  thim  standin'  be  th'  battle 
cry  iv  our  grand  old  organyzation. 

"Says  th'  Sinitor  fr'm  Louisyanny :  'Louisyanny,  th'  proudest 
jool  in  th'  dyadim  iv  our  fair  land,  remains  thrue  to  th'  honored 

**It  is  prosaic  to  spoil  Mr.  Dooley's  figure  by  stating  that  he  is  wrong 
on  this  point.    Hides  were  admitted  free  of  duty  by  the  Payne-Aldrich  bill. 


THE  TARIFF  PROBLEM  333 

teachin's  iv  our  leaders.  Th'  protective  tariff  is  an  abomynation. 
It  is  crushin'  out  th'  lives  iv  our  people.  Wan  iv  th'  worst  parts  is 
th'  tariff  on  lathes.  Fellov^'  sinitors,  as  long  as  one  dhrop  iv  pathriotic 
blood  surges  through  me  heart,  I  will  raise  me  voice  again  a  tariff  on 
lathes,  onless,'  he  says,  'this  dhread  imply ment  iv  oppressyon  is 
akelly  used,'  he  says,  'to  protict  th'  bland  an'  beautiful  molasses  if  th' 
State  iv  me  birth,'  he  says. 

'*  *I  am  heartily  in  sympathy  with  th'  sinitor  fr'm  lyouisyanny,' 
says  th'  Sinitor  fr'm  Virginya.  '1  loathe  th'  tariff.  Fr'm  me  arliest 
days  I  was  brought  up  to  look  on  it  with  pizenous  hathred.  At  many 
a  convintion  ye  cud  hear  me  whoopin'  agin'  it.  But  if  there  is  such  a 
lot  iv  this  monsthrous  iniquity  passin'  around,  don't  Virginya  get 
none?  Gintlemen,  I  do  not  ask,  I  demand  rights  f'r  me  common- 
wealth. I  will  talk  here  ontil  July  fourth,  nineteen  hundred  an' 
eighty-two.  agin'  th'  proposed  helHsh  tax  on  feather  beds  onless 
somethin'  is  done  f'r  th'  tamarack  bark  iv  old  Virginya.' 

"A  sinitor:    'W^hat's  it  used  f'r?' 

"Th'  sinitor  fr'm  Virginya :  *I  do  not  quite  know.  It  is  ayether 
a  cure  f'r  th'  hives  or  enthers  largely  into  th'  mannyfacture  iv  carpet 
slippers.  But  there's  a  frind  of  mine  who  makes  it  an'  he  needs  the 
money.' 

"  'Th'  argymints  iv  th'  Sinitor  fr'm  Virginya  are  onanswerable,' 
says  Sinitor  Aldhrich.  'Wud  it  be  agreeable  to  me  Dimmycratic 
colleague  to  put  both  feather  beds  an'  his  what-ye-call-it  in  th'  same 
item  ?' 

"  *In  such  circumstances,'  says  th'  Sinitor  fr'm  Virginya,  'I  would 
be  foorced  to  waive  me  almost  insane  prejudice  again'  th'  hellish 
docthrines  iv  th'  distinguished  Sinitor  fr'm  Rhode  Island,'  says  he. 

"An'  so  it  goes,  Hinnessy.  Nivir  a  sordid  wurrud,  mind  ye,  but 
ivrything  done  on  th'  fine  old  principle  iv  give  an'  take." 

"Well,"  says  Mr.  Hinnessy,  "what  difference  does  it  make?  Th' 
foreigner  pays  th'  tax,  anyhow." 

"He  does,"  said  Mr.  Dooley,  "if  he  ain't  turned  back  at  Ellis 
Island." 

169.     Tricks  of  Tariff  Making^" 

A  superficial  comparison  of  two  tariff  bills  gives  very  little  clue 
to  the  differences  between  them.  An  accurate  count  of  the  number 
of  increases  and  decreases  in  the  later,  as  compared  with  the  earlier 
bill,  throws  no  light  upon  the  larger  question  of  whether  the  revision 

*^The  evidence  presented  in  this  reading  is  all  taken  from  "The  Tariff 
of  1909,"  by  H.  Parker  Willis,  in  the  Journal  of  Political  Economy,  XVII, 
597-611. 


334  CURRENT  ECONOMIC  PROBLEMS 

was  an  upward  or  a  downward  revision.  This  method  is  important 
only  because  of  its  suggestion  of  a  method  for  proving  to  superficial 
observers  that  there  has  been  an  upward  or  a  downward  revision. 
Real  changes  and  their  effects  can  be  determined  only  by  examining 
rates  on  particular  commodities  in  view  of  a  knowledge  of  all  the 
conditions  surrounding  the  production  of  these  commodities.  This 
can  be  well  illustrated  by  reference  to  the  tariff  of  1909. 

The  statement  has  been  repeatedly  made  that  this  tariff  substan- 
tially reduced  the  level  of  duties.  The  conclusion  is  established  by 
the  arithmetical  process  of  counting  advances  and  reductions.  It 
fails,  however,  to  take  into  consideration  the  fact  that  most  of  the 
duties  reduced  were  upon  commodities  which  are  produced  in  this 
country  for  export.  In  such  cases  tariff  duties  are  purely  nominal. 
They  can  in  the  very  nature  of  things  furnish  no  protection,  because 
there  is  nothing  to  protect  against.  On  the  contrary  the  increases 
were  upon  goods  which  needed,  or  at  any  rate  could  profit  by,  ad- 
vances. To  take  a  few  illustrations :  In  Schedule  A  the  duties  on 
most  acids  were  cut,  as  well  as  upon  ammonia,  borax,  and  ether. 
On  drugs,  however,  which  were  in  position  to  profit,  substantial 
advances  were  made.  In  Schedule  B  the  rates  were  reduced  on 
firebrick,  marble,  onyx,  granite,  and  other  non-portable  articles.  On 
pumice  stone  and  certain  grades  of  glass,  duties,  however,  were 
raised.  In  Schedule  C  the  reductions  in  nominal  duties  were  very 
large,  that  on  iron  ore  dropping  from  40  to  15  cents.  Yet  upon  the 
more  expensive  and  finished  metal  products  there  were  material 
advances.  The  best  examples  in  the  bill,  however,  are  contained  in 
Schedule  G,  dealing  with  agricultural  products,  of  which  we  export 
very  large  surpluses.  Neglecting  the  obvious  facts  of  the  grain 
trade.  Congress  tried  to  give  the  impression  of  great  care  for  the 
farmer.  Thus  on  broom  corn,  which  had  been  free,  a  duty  of  $3  a 
ton  was  imposed ;  the  rate  on  buckwheat  flour  was  raised  from  20  to 
25  per  cent;  on  oats  from  15  to  20  cents  a  bushel.  Hops  were 
advanced  from  12  to  15  cents  a  pdund.  For  some  obscure  reason 
the  duty  on  cabbages  was  dropped  from  3  to  2  cents.  Nursery  stock 
and  fruits  received  a  general  raise.  Congress,  of  course,  did  not 
overlook  the  opportunity  of  dealing  the  usual  "blow  at  the  beef 
trust"  by  reducing  the  duty  which  it  did  not  need. 

But  many  devices  much  more  subtle  than  these  found  their  way 
into  the  bill.  Many  changes  were  made  in  the  unit  of  measurement 
for  customs  purposes.  Electric  lighting  carbons,  for  instance,  which 
had  been  90  cents  per  hundred,  were  now  made  65  cents  per  hundred 
feet  on  certain  grades  and  35  cents  on  other  grades,  the  only  kind 
imported  in  practice  being  dutiable  at  the  higher  rate.    A  provision 


THE  TARIFF  PROBLEM  335 

in  the  cotton  schedule  that  in  counting  threads,  upon  the  number  of 
which  the  rate  of  duty  depended,  "all  the  warp  and  filling  threads" 
should  be  included,  operated  practically  to  Rouble  the  duties  upon 
some  classes  of  goods,  in  so  much  as,  under  the  former  method  of 
counting,  "double  yarns,"  in  which  the  thread  is  twisted  together  out 
of  two  or  more  yarns,  had  been  counted  as  a  single  thread.  The 
enormous  concession  made  to  the  public  by  the  reduction  of  the  tariff 
on  sugar  by  one-twentieth  of  a  cent  a  pound,  a  reduction  which  could 
have  no  influence  on  price,  was  the  mask  for  changing  the  method 
of  weighing  sugar,  which  in  itself  amounted  to  a  substantial  increase 
in  duty. 

These  examples  by  no  means  cover  the  act.  In  fact  it  is  doubtful 
whether  all  the  tricks  in  the  bill  will  ever  be  discovered.  However, 
they  are  typical  of  the  kinds  of  tricks  that  are  incorporated  in  the 
American  tariff  bill. 

J.    THE  SCIENTIFIC  REVISION  OF  THE  TARIFF 
170.    Producers'  Costs  and  Tarifif  Duties" 

BY  WILLIAM  C.  REDFIEU) 

In  the  Republican  platform  of  1908  appeared  the  following 
words:  "In  all  tariff  legislation  the  true  principle  of  protection  is 
best  maintained  by  the  imposition  of  such  duties  as  will  equal  the 
difference  between  the  cost  of  production  at  home  and  abroad,  to- 
gether with  a  reasonable  profit  to  American  industries." 

It  is  a  great  pity  that  those  words  were  printed  only  in  the 
English  language.  It  is  a  pity  that  they  were  not  translated  into 
Japanese,  that  they  might  adorn  the  cabs  of  the  720  American  loco- 
motives in  Japan;  and  into  Chinese,  that  those  in  Manchuria  who 
wear  American  cottons  might  know  how  self-sacrificing  the  makers 
were  in  selling  them  to  them.  It  is  a  pity  that  they  were  not  trans- 
lated into  Hindu,  that  the  stokers  of  the  Calcutta  eJectric-light  works 
might  know  how  generous  was  the  American  firm  that  sold  them 
their  apparatus. 

But  since  the  difference  in  the  cost  of  production  is  said  to  be 
such  that  we  need  protection  against  the  manufacturers  abroad,  let 
us  look  more  closely  at  those  words.  Speaking  from  a  manufac- 
turer's standpoint,  I  venture  to  think  it  can  be  shown  that  this 
statement  of  the  Republican  platform  has  these  definite  character- 
istics, i)  It  involves  certain  contradictions,  well  known  to  manu- 
facturers, which  destroy  its  force.    2)     It  assumes  the  existence 

"Adapted  from  The  New  Industrial  Day,  81-102,  120,  122.  127,  130-131. 
Copyright  by  the  Century  Co.  (191 1). 


336  CURRENT  ECONOMIC  PROBLEMS 

of  facts  which  do  not  exist.  3)  It  may  involve  such  discrimi- 
nation against  some  American  manufacturers  and  in  favor  of  some 
foreign  manufacturers  as  is  certainly  unjust.  4)  It  ignores  the 
nature  of  cost  and  the  nature  of  competition,  and,  taken  on  its  face, 
calls  for  the  removal  of  the  duties  on  many  American  manufac- 
tures. 5)  It  has  worked  grave  injustice  to  our  poor  people  and 
disaster  to  many  American  manufacturers. 

These  things  I  believe  at  the  end  of  twenty-five  years'  manu- 
facturing experience.  I  have  found  it  possible,  and  we  all  know 
hundreds  of  American  manufacturers  have  found  it  possible,  to 
compete  in  the  markets  of  the  world.  How  does  it  happen  that  in 
a  quotation  recently  made  for  machinery  to  a  mine  in  Japan  the 
American  price  was  $215  less  than  the  English  price.  Last  year  I 
was  in  the  city  of  Tokyo,  and  a  friend  who  was  with  me  took  a 
large  contract  from  the  Japanese  Imperial  State  Railways,  in  open 
competition  with  Germany  and  England  for  several  million  dollars' 
worth  of  locomotives.  That  gentleman,  at  the  locomotive  shops  of 
the  Imperial  Railways,  was  told,  "We  can  make  locomotives  much 
cheaper  than  you  can  in  America."  "Can  you  ?"  inquired  my  friend. 
"If  so,  let  us  get  at  the  facts.  What  makes  you  think  your  loco- 
motives cost  less  than  ours?"  "Why,"  the  Japanese  replied,  "be- 
cause we  pay  only  one-fifth  the  wages  to  our  men  that  you  pay  to 
yours."  So  they  got  the  cost  books,  and  discovered  that  the  labor 
cost  for  locomotives  on  the  same  specifications  was  three  and  one- 
half  times  greater  in  the  Japanese  than  in  the  American  shop.  That 
is  a  perfectly  normal  fact. 

Another  illustration  may  be  interesting.  My  agent  in  the  city 
of  Calcutta  one  day  called  my  attention  to  the  shoes  he  was  wear- 
ing. .  He  said,  "I  paid  $3.85  for  those  shoes."  "Why,"  I  said,  "that 
is  an  American  shoe."  "Yes,"  he  said,  "I  bought  it  here.  It  is  the 
regular  American  $5  shoe." 

I  treasure  as  a  souvenir  a  small,  ordinary  pencil.  It  has  upon  it 
the  name  of  the  American  Lead  Pencil  Co.  I  bought  it  out  of 
stock  in  the  small  town  of  Bandoeng,  in  central  Java.  I  have  in 
my  home  some  men's  toilet  articles — shaving  soap,  etc.,  made  in 
New  Jersey.     I  bought  them  in  Hongkong. 

Yet  we  are  told  that  though  foreign  manufacturers  are  handi- 
capped by  distance,  time,  and  freight,  we  can  not  compete  with 
them  at  home  because  we  pay  high  wages.  To  end  these  illustra- 
tions, let  me  give  a  list  taken  at  random  from  one  export  journal 
of  American  goods  offered  abroad  for  sale  in  open  competition 
with  Germany  and  Great  Britain :  "Ironmongery,  fine  tools,  bicycles, 
sporting  goods,  lamps,  razors,  fireanns,  carriage  makers'  supplies, 


THE  TARIFF  PROBLEM-  337 

sanitary  goods,  lighting-  systems,  dry  goods,  men's  furnishings, 
boots  and  shoes,  corsets,  hats  and  caps,  textiles,  clothing,  women's 
furnishings,  office  furniture,  office  devices,  stationery,  typewriters, 
filing  cabinets,  printers'  supplies,  paper,  machine  tools,  boilers, 
lubricants,  electrical  material,  valves,  wood-working  machinery, 
belting,  shafting,  pulleys,  packing,  furniture,  kitchenware,  and  agri- 
cultural implements."  There  are  manufacturing  houses  in  America 
that  sell  almost  no  goods  in  the  United  States.  They  pay  as  high 
wages  as  anyone. 

It  is  often  assumed  that  American  manufacturers  cannot  com- 
pete in  the  world's  market  on  even  terms  without  protection,  and 
can  not  even  hold  their  own  at  home.  The  only  way  suggested  of 
meeting  competition  is  by  reducing  wages,  the  crudest,  the  coarsest, 
and  the  most  brutal  of  all  methods. 

To  get  at  the  heart  of  the  question,  let  us  look  at  the  cost  of 
production  from  the  manufacturer's  standpoint.  There  are  four 
groups  that  enter  into  every  factory  cost :  i )  the  cost  of  labor ; 
2)  the  cost  of  material;  3)  overhead  charges;  and  4)  selling  cost. 
The  aggregate  of  these  four  fixes  the  point  per  unit  where  profits 
begin.    Let  us  discuss  them  separately : 

First,  labor  cost.  In  a  modern  industry  this  is  often  not  the 
largest  element  in  cost  per  unit  of  product.  It  is  a  matter  of  testi- 
mony that  in  an  American  locomotive  the  percentage  of  direct  labor 
cost  is  eighteen  and  that  of  material  and  overhead  charges  eighty- 
two.  The  important  factor  in  labor  cost  is  not  the  rate  of  wage, 
but  the  rate  of  output.  It  is  not  what  you  pay  but  what  you  get 
from  what  you  pay  that  counts. 

Once  in  Paris  I  employed  9.  lot  of  French  carpenters  and  paid 
them  each  $1.90  a  day,  and  at  the  end  of  four  days  I  was  well-nigh 
crazy.  Accidentally  t  found  a  man  who  looked  like  an  American 
carpenter.  "Are  you  a  Yankee?''  I  said.  "I  want  to  employ  you 
at  once,"  He  said,  "Boss,  I  charge  $4.50  a  day."  I  said,  "Come 
right  along."  Two  days  later  I  discharged  four  Frenchmen,  for  my 
one  American  carpenter  did  more  than  four  Frenchmen.  There  are 
sound  reasons  for  this.  A  French  workman  goes  to  work  having 
eaten  almost  nothing.  For  breakfast  he  has  a  bit  of  bread  and 
coiTee.  At  eleven  o'clock  he  eats  a  little  bread  and  drinks  a  little 
sour  wine.  At  three  he  does  the  same.  At  night  he  has  what  he 
calls  a  dinner.  Such  a  man  cannot  work  at  any  labor  requiring 
steady  physical  exertion  in  competition  with  a  man  who  eats  three 
square  meals  a  day. 

Cost  is  everywhere  and  always  variable — at  every  time  and  in 
every  place.    Output  varies  with  the  character  of  the  workman,  the 


338  CURRENT  ECONOMIC  PROBLEMS 

equipment,  the  arrangement,  with  the  nature  of  the  superintendence, 
with  the  discipline.  It  is  absurd  to  assume  that  work  done  by  a 
man  paid  $4  daily  costs  more  per  unit  than  work  done  by  a  man 
paid  $2.  It  may  be  more  or  less  costly.  Therefore,  because  cer- 
tain goods  are  produced  at  a  certain  labor  cost  per  unit  when  the 
wage  rate  is  $3  per  day  in  a  certain  place,  it  can  never  be  argued  that 
the  same  wage  rate  on  similar  goods  results  in  hke  labor  cost  per 
unit  in  another  place.  It  may  vary  ten  to  fifty  per  cent.  To  discuss  the 
wage-rate  as  the  controlling  factor  in  labor  cost  per  unit  is  both 
inadequate  and  misleading.  To  say  that  a  man  gets  $3  per  day 
means  nothing  at  all  as  to  the  cost  of  his  product.  It  may  be  either 
high  or  low. 

Apart  from  the  wage  rate,  labor  cost  per  unit  is  very  largely 
under  the  control  of  the  manufacturer  and  may  be  radically  altered 
without  changing  the  wage  rate  at  all.  I  know  a  factory  in  which 
the  product  was  doubled  in  two  years  without  adding  a  man  or 
without  adding  a  machine.  This  is  how  it  came  about.  The  men 
had  been  paid  on  day  work.  The  head  of  the  concern  changed  to 
a  piece  work  plan,  guaranteeing  the  day  wage  as  a  minimum,  and 
further  guaranteeing  that  the  piece  work  rate  should  not  be  cut. 
The  first  result  was  largely  to  increase  the  product.  Then  three 
other  things  happened.  The  manufacturer  went  to  a  man  and  said, 
"Pat,  you  are  earning  pretty  good  wages.  The  more  you  earn  the 
better  for  us  both.  But  there  is  one  thing  you  cannot  afford,  and 
that  is  to  have  your  machine  shut  down  for  repairs.  It  hurts  me 
and  hurts  you  every  hour  that  machine  is  idle."  The  result  was 
that  the  fifteen  minutes  which  the  employees  were  induced  to  spend 
in  overhauling  the  machine  each  day  saved  many  thousands  a  year 
■for  the  factory.  In  the  next  place  more  scientific  firing  saved  one- 
eighth  of  the  operating  time  of  that  part  of  the  plant,  besides  an 
immense  saving  in  fuel.  In  the  third  place  several  thousands  a 
year  was  saved  on  preventing  the  output  of  bad  goods.  In  these 
ways  the  outptit  of  the  factory  was  doubled  in  two  years  and 
the  same  thing  is  possible  everywhere. 

Labor  cost  per  unit  varies  with  time  and  place,  and  in  the  same 
shop  is  constantly  changing.  It  is  affected  by  sanitary  and  climatic 
conditions.  It  is  enormously  modified  by  the  progress  of  inven- 
tions. The  labor  cost  in  July  may  be  entirely  altered  in  December. 
It  varies  with  the  arrangement  of  the  machinery  within  the  shop, 
is  affected  by  the  space  available.  It  varies  with  the  sufficiency 
and  regularity  of  the  supply  of  material  and  its  suitability  to  the 
work.     It  is  affected  by  the  lighting  and  the  power  equipment  of  a 


THE  TARIFF  PROBLEM  339 

shop  and  will  change  with  a  change  in  superintendents.  It  is  af- 
fected by  the  methods  of  paying.  And  I  write  from  an  experience 
in  figuring  labor  costs  to  hundredths  of  a  cent  per  unit.  Labor  cost 
is,  therefore,  a  variable  element.  It  can  not  be  measured  by  any 
fixed  standard.  To  offer  a  fixed  rate  of  duty  to  cover  the  differ- 
ences in  labor  cost  is  to  state  an  absurdity,  for  the  one  is  variable 
and  the  other  is  fixed.  In  like  manner  it  can  be  shown  that  costs  of 
material,  overhead  charges,  and  selling  charges  are  variable. 

In  fact,  given  the  scientific  spirit  in  management,  constant  and 
careful  study  of  operations  and  details  of  costs,  modern  buildings 
and  equipment,  proper  arrangement  of  plant  and  proper  material, 
ample  power,  space  and  light,  a  high  wage  rate  means  inevitably 
a  low  labor  cost  per  unit  of  product  and  a  minimum  of  labor  cost. 
A  steadily  decreasing  labor  cost  per  unit  is  not  inconsistent  with,  but 
is  normal  to,  a  coincident  advance  in  the  rate  of  pay  when  accom- 
panied by  careful  study  of  methods  and  equipment.  Conversely 
low-priced  labor  nearly  always  is  costly  per  unit  produced,  and 
usually  is  inconsistent  with  good  tools,  equipment  and  large  and 
fine  product.  From  the  above  it  is  affirmed,  without  fear  of  suc- 
cessful contradiction,  that  American  production  today  is  often 
as  cheap  or  cheaper  in  the  labor  cost  per  unit  than  foreign,  and, 
so  far  f fom  needing  protection,  it  needs  to  be  set  free,  that  we  may 
conquer  the  world. 

I  believe  that  protection  is  an  injury  to  American  manufac- 
turers by  limiting  their  scope  and  by  narrowing  their  horizon.  I 
believe  it  costs  them  enormously  in  the  loss  in  foreign  business,  and 
that  is  one  reason  why  manufacturers  in  this  country  are  so  rapidly 
ceasing  to  be  protectionists.  Another  reason  for  their  change  of 
faith  is  that  their  plants  have  become  so  large  that  only  in  rare  years 
has  the  demand  in  this  country  become  enough  to  take  their  total 
product,  and  they  have  had  to  sell  abroad.  And  so  long  as  they  must 
pay  the  high  price  for  materials  they  find  it  somewhat  difficult  to  sell 
abroad,  although  they  succeed  at  it.  An  overstocked  domestic 
market  is  often  no  theory  but  a  real  condition.  Take  away  the 
shackles  that  bind  the  manufacturer  and  he  will  be  free  to  sell  in 
the  world's  markets,  without  touching  his  pay  roll. 

Protection,  however,  causes  a  manufacturer  almost  inevitably 
to  depend  on  the  Government  for  help,  instead  of  carefully  and 
minutely  studying  the  details  of  his  own  business.  Protection,  more- 
over, has  enabled  many  American  manufacturers  to  prosper  by  sell- 
ing to  their  fellow  countrymen  at  prices  so  high  that  they  have 
not  thought  it  necessary  to  study  their  own  businesses  closely,  be- 
cause they  depend  upon  Government  backing. 


340  CURRENT  ECONOMIC  PROBLEMS 

171.     Investigation  and  Tariff  Legislation^' 

BY  HENRY  C.  EMERY 

It  is  easy  to  point  out  the  difficulties  in  determining  the  cost  of 
production,  the  great  variations  in  the  cost  of  production  at  differ- 
ent times  and  in  different  places  in  the  same  country,  and  the 
absurdity  of  applying  this  principle  with  absolutely  rigid  logic.  But 
any  principle  of  actual  commercial  legislation  must  be  somewhat 
rough  and  ready  and  is  never  intended  by  practical  men  to  be  carried 
to  absolutely  logical  conclusions.  It  can,  of  course,  be  pointed  out 
that  in  strict  logic  such  a  principle  as  that  just  mentioned  would 
require  the  enactment  of  a  different  tariff  on  goods  imported  from 
different  countries,  according  to  the  variations  in  cost  of  produc- 
tion in  those  countries. 

This,  however,  can  be  easily  met  by  the  application  of  a  little 
common  sense  and  the  recognition  that  the  real  question  is  to  adjust 
rates  in  such  a  way  as  to  meet  the  competition  of  the  chief  com- 
peting country.  If  there  are  several  countries  whose  products  com- 
pete actively,  the  true  protectionists  would  demand  that  rates  should 
be  adjusted  to  meet  the  competition  of  that  country  in  which  the 
cost  of  production  was  the  lowest. 

It  can,  of  course,  be  pointed  out,  furthermore,  that  the  logical 
application  of  this  principle  would  require  enormous  duties  on 
articles,  like  coffee  and  rubber,  which  are  not  produced  in  this 
country  at  all.  But  here,  again,  it  is  not  a  question  of  strict  logic, 
but  of  practical  common  sense.  Not  even  the  most  extreme  pro- 
tectionist ever  dreamed  of  applying  the  principle  to  articles  of  this 
kind. 

I  am  convinced,  however,  that  it  is  possible  in  the  case  of  most 
staple  articles  of  manufacture,  to  determine  the  ratio  of  the  costs 
between  two  different  countries  with  sufficient  accuracy  for  prac- 
tical legislation.  There  is,  of  course,  no  single  cost  of  production 
of  any  article  for  a  given  country,  but  there  is  a  fairly  definite  dif- 
ference in  the  money  costs  of  a  given  specified  article  between  two 
different  countries ;  and  this  ratio  can  in  many  cases  be  sufficiently 
well  determined  to  make  such  information  of  great  value. 

As  to  the  question  of  getting  this  information,  the  problem  has 
proved  easier,  so  far  as  domestic  manufactures  are  concerned,  than 
was  expected,  and  has  not  proved  insuperable  in  the  case  of  foreign 
manufactures.  Although  in  most  cases  it  is  impossible  to  get  for- 
eign information  as  complete  and  detailed  as  that  which  can  be  se- 

"Adapted  from  an  article  in  the  American  Economic  Review,  II,  Supple- 
ment 20-25.    Copyright  by  the  American  Economic  Association  (iQ^i)- 


THE  TARIFF  PROBLEM  341 

cured  for  the  industry  in  this  country,  we  are  convinced  that  enough 
information  can  be  secured  for  an  adequate  basis  of  judgment.  In 
any  case,  even  if  foreign  costs  could  not  be  secured,  the  determina- 
tion of  the  cost  of  production  at  home  would  still  be  an  important 
part  of  a  tariff  inquiry.  The  real  question  is  not  so  much  what 
is  the  actual  mill  cost  in  a  competing  country,  but  at  what  prices 
and  under  what  conditions  could  goods  be  laid  down  in  the  Amer- 
ican market  to  compete  with  the  home  product  in  the  absence  of 
any  customs  duty.  These  facts  can  be  determined  with  sufficient 
accuracy  for  legislative  purposes. 

Of  course,  many  of  you  will  say  that  all  the  foregoing  implies 
the  maintenance  of  the  protective  principle,  and  that  since  you 
do  not  believe  in  the  protective  principle  you  can  see  no  utility 
in  investigations  of  this  kind.  There  are  two  answers  to  this.  In 
the  first  place,  it  seems  to  me  absurd  to  protest  against  a  better 
method  of  accomplishing  a  given  result,  simply  because  you  do 
not  believe  in  the  result  itself.  If  the  free  trader  can  get  his  policy 
adopted  and  put  into  actual  practice  by  the  people,  well  and  good. 
But  if,  as  a  matter  of  actual  politics,  the  people  prefer  a  protective 
tariff,  even  the  free  trader  ought  to  welcome  an  effort  to  have  such 
a  tariff,  of  which  he  disapproves  in  principle,  levied  as  honestly  and 
fairly  as  possible.  To  do  otherwise,  would  be  to  put  one's  self  in  the 
position  of  a  man  who  could  oppose  regulations  protecting  the  safety 
of  passengers  in  ocean  travel,  or  the  welfare  of  seamen  engaged 
in  such  occupation,  on  the  ground  that  he  did  not  believe  in  people 
going  abroad,  and  therefore  did  not  believe  in  making  travel  as 
safe  as  possible. 

The  second  answer  is  that  a  tariff  with  no  protection  features 
has  never  been  seriously  considered  by  any  political  party  in  this 
country.  One  great  party  does,  on  the  whole,  believe  in  a  revenue 
tariff  and  is  working  toward  that  end,  meaning  by  this  only  that 
duties  shall  be  levied  primarily  for  revenue  purposes  rather  than 
for  protective  purposes.  However,  this  program  involves  the 
placing  of  import  duties  on  a  large  variety  of  articles  which  are 
produced  at  home  and  which  consequently  bear  incidental  pro- 
tection. 

Therefore,  a  study  of  relative  industrial  conditions  becomes  as 
important  for  the  person  who  believes  in  a  revenue  tariff  as  it  does 
for  the  protectionist.  In  the  first  place,  it  may  be  assumed  that  a 
Congress  wishing  to  adjust  duties  in  this  way,  while  aiming  solely 
to  secure  revenue,  would  prefer  to  get  the  needed  revenue  with 
the  least  disturbance  possible  to  business.     Furthermore,  they  wish 


342  CURRENT  ECONOMIC  PROBLEMS 

to  raise  the  largest  amount  of  revenue  with  the  least  burden  pos- 
sible on  the  consumer.  This,  again,  can  be  determined  only  after 
a  very  careful  study  of  relative  industrial  conditions. 

Even  more  important,  however,  from  the  point  of  view  of  the 
revenue  principle,  is  the  fact  that,  where  it  is  intended  to  raise 
revenue  by  imposing  duties  on  a  large  number  of  articles  rather  than 
on  a  few  non-competing  articles,  it  is  impossible  to  make  any  ac- 
curate estimate  of  what  the  revenues  will  be,  until  a  study  has  been 
made  of  relative  prices  and  costs  as  a  basis  for  determining  how  far 
imports  would  be  increased  or  decreased  by  changes  in  duties. 

172.     The  Impossibility  of  Ascertaining  Costs'' 

BY  H.  PARKER  WILLIS 

The  case  against  the  cost-of-production  theorj'-  as  a  regulator 
"of  tarifip  duties  may  be  summed  up  in  a  series  of  propositions  some- 
what as  follows : 

1.  In  practice  the  ascertainment  of  costs  is  impossible.  No 
board  of  commission  has  the  power  to  demand  cost  statements 
from  manufacturers  or  producers ;  and  if  it  had,  it  could  not  se- 
cure truthful  statements.  Moreover,  there  is  no  way  of  obtaining 
statements  of  any  kind  from  foreigners. 

2.  Even  if  all  manufacturers  both  here  and  abroad  were  willing 
to  throw  open  their  books  in  an  absolutely  honest  and  impartial 
way  to  an  all-powerful  commission,  it  would  be  of  little  service. 
This  is  because  cost  accounting  is  not  generally  practiced  by  pro- 
ducers and  because,  where  it  is  practiced,  there  is  no  general  agree- 
ment as  to  the  treatment  of  different  elements  of  cost. 

3.  If  there  were  a  perfect  system  of  cost  accounting  installed 
upon  a  uniform  basis  in  every  plant  manufacturing  a  given  article 
throughout  the  world,  knowledge  of  comparative  costs  would  still 
be  of  little  service,  since  costs  in  every  country  would  have  to  be 
known  before-  any  conclusions  could  be  arrived  at  as  to  what  tariff 
rate  was  needed  to  protect  a  given  country  against  the  competition 
of  others. 

4.  If  all  these  facts  were  known  for  every  country,  the  diffi- 
culty would  be  about  as  great  as  it  was  previously  if  the  data  were 
to  be  used  for  the  establishment  of  tariff  rates.  This  is  because 
costs  of  production  vary  as  widely  within  a  given  country  as  they 
do  between  different  countries.  Unless  it  were  known  whether  a 
duty  were  to  be  imposed  for  the  purpose  of  equalizing  costs  as 

•'Adapted  from  an  article  in  the  Journal  of  Political  Economy,  XIX, 
2,7A-376  (191 1). 


THE  TARIFF  PROBLEM  343 

between  the  best,  the  poorest,  or  the  average  establishments  in  the 
several  countries,  the  information  about  costs  would  be  useless  as  a 
basis  of  tariff  duties. 

5.  Even  with  knowledge  on  all  of  the  points  already  enumer- 
I     ated,  and  with  a  clear-cut  intention  on  the  point  indicated  above, 

the  cost  analysis  would  still  be  inadequate  because  of  the  fact  that 
many  commodities  are  produced  in  groups,  or  as  by-products  of 
one  another,  so  that  to  utilize  the  general  cost  analysis  as  a  basis 
for  tariff  rates,  it  would  be  necessary  to  know  the  manufac- 
turer's intention  with  reference  to  the  fixing  of  prices.  It  would 
further  be  necessary  to  know  that  the  manufacturer  had  no  dis- 
position to  establish  "export  prices"  at  rates  lower  than  those  that 
would  be  dictated  by  his  costs  of  production. 

6.  If  all  of  the  foregoing  factors  were  known,  including  posi- 
tive data  regarding  the  intention  of  the  manufacturer  in  regard 
to  the  establishment  of  prices,  there  would  still  remain  the  ques 
tion  whether  this  information  about  costs,  which  is  necessarily  stated 
in  terms  of  money,  would  have  any  real  significance  of  a  permanent 
economic  character.  Money  costs  do  not  correspond  in  all  cases 
to  real  costs  as  measured  by  sacrifice  of  labor  and  capital.  It  may  be 
true  that  a  given  country  can  produce  much  more  cheaply  than 
another,  yet  it  does  not  follow  that  it  will  so  produce,  since  its  cost 
advantage  in  some  other  line  may  be  so  much  greater  as  to  dictate 
its  devoting  its  attention  almost  exclusively  to  that  line. 

&  For  all  these  reasons,  the  conclusion  must  be  reached  that  cost 

%■    of  production  is  both  practically  impossible  and  theoretically  un- 
sound as  a  basis  for  the  establishment  of  tariff  duties. 


VII 
THE   PROBLEM   OF   RAILWAY   REGULATION 

In  a  machine  system  continental  in  extent  and  embracing  a  varied  host  of 
correlated  industrial  activities  the  railroad  occupies  a  position  of  strategic 
importance.  Through  it  the  vast  and  intricate  gear  of  "the  industrial  machine" 
is  made  to  "engage."  Its  rates,  by  influencing  costs  and  prices,  perform  im- 
portant services  in  the  organization  and  direction  of  industry.  It  is  inevitable, 
therefore,  that  we  should  have  "a  railroad  problem"  which  three  considerations 
impel  the  public  to  keep  alive.  First,  the  railroad  is  an  industrial  unit  of 
large  size;  and  in  a  country  steeped  in  the  conventions  of  competition,  the 
giant  is  always  under  suspicion.  Second,  the  business  tends  to  be  monopo- 
listic; and  to  monopoly  the  public  imputes  not  only  horns  and  forked  tail, 
but  a  capacious  maw  as  well.  Third,  it  is  an  instrument  possessed  of  great 
powers  of  industrial  control;  for  through  its  "manipulation"  of  rates  it  can 
cause  industry  to  flourish  or  fade;  it  can  give  to  industrial  development  a 
"natural"  or  an  untoward  direction.  These  considerations  have  caused  the 
problem  to  wear  a  constant  freshness  which  comes  from  its  varied  and  never- 
ending  sequel. 

When  "railroads  were  new"  our  people  were  thoroughly  imbued  with 
individualism.  Firmly  convinced  were  they  that  one  should  have  what  he 
earned,  and  that  he  earned  "what  he  got."  They  were  satisfied  that  in  com- 
petition the  public  possessed  an  adequate  safeguard.  They  did  not  hesitate  to 
pronounce  "regulation"  "meddlesome  interference"  and  to  characterize  the 
almost  unthinkable  proposal  of  government  ownership  as  "socialistic."  But 
they  had  no  adequate  conception  of  the  nature  of  the  railroad  industry.  They 
did  not  see  that  railway  economy  requires  monopoly;  that  the  proper  per- 
formance of  its  services  requires  the  business  to  be  endowed  with  public 
powers;  that  costs  of  particular  services  cannot  be  isolated  to  do  duty  as 
bases  for  particular  rates ;  and  that  "normally  the  industry  is  in  a  stage  of 
increasing  returns." 

These  economic  characteristics  of  the  industry,  quite  in  opposition  to 
popular  theory,  have  determined  our  policy  in  dealing  with  it.  We  have 
found  that  attempts  to  fix  rates  by  competition  have  resulted  in  alternate  pe- 
riods of  high  and  low  charges,  in  fluctuating  dividends  and  prices  of  secur- 
ities, in  speculation  and  "railroad  wrecking,"  in  unpredictable  items  of  future 
cost,  introducing  elements  of  grave  risk  into  every  business  enterprise.  We 
have  been  confronted  with  abundant  testimony  of  discriminations  in  favor  of 
large  shippers  and  particular  localities ;  and  have  concluded  that  "unreasonable 
rates"  were  interfering  with  the  "natural"  course  of  development  and  were 
favoring  monopoly.  And  more  than  once  we  have  suspected  that,  because  of 
its  peculiar  position,  the  railroad  was  inclined  to  charge  too  much.  These 
observations  we  have  translated  into  problems  which,  through  the  state,  we 
have  tried  to  solve. 

A  protracted  and  unpleasant  experience  has  convinced  us,  slowly  to  be 
sure,  that  the  problem  cannot  be  solved  in  terms  of  competition.  We  have 
never  been  quite  willing  formally  to  renounce  so  efficacious  an  instrument  of 
salvation ;  but,  unconventionally  at  any  rate,  we  have  little  by  little  quit  trying 
to  make  the  railroads  compete. 

Primarily,  perhaps,  because  discrimination  appeals  to  us  as  unjust,  we 
have  given  our  attention  to  the  problem  of  preventing  interference  with  the 
"natural"  course  of  development.  This  problem  is  still  in  process  of  solu- 
tion.   The  outlawing  of  rebates  has  brought  forth  an  almost  infinite  variety 

344 


RAILWAY  REGULATION  345 

of  ingenious  substitutes.  As  these  have  been  relegated  to  outer  darkness  their 
places  have  been  taken  by  others.  After  many  years  of  strenuous  effort  we 
have  not  as  yet  succeeded  in  ridding  ourselves  of  this  "evil."  In  fact,  it  seems 
that  its  extirpation  can  be  achieved  only  by  a  careful  supervision  of  such 
matters  as  billing,  the  collection  of  claims,  the  making  of  purchases,  etc.  At 
present  many  discriminations  are  concealed  in  differences  in  service.  We  are 
realizing  this,  and  service  is  beginning  to  be  standardized  by  governmental 
authority. 

The  problem  of  the  railroad  as  a  monopoly  is  also  "in  solution."  The 
grant  to  the  Interstate  Commerce  Commission  of  authority  to  set  aside  par- 
ticular rates  has  grown  into  the  power  to  prescribe  whole  schedules  of  rates. 
With  this  process  has  come  many  new  "problems."  To  prescribe  "reasonable 
rates,"  the  Commission  has  had  to  know  costs.  To  determine  these,  it  has 
been  compelled,  with  the  assent  of  Congress,  to  prescribe  uniform  accounting 
systems.  The  problem  has  further  involved  a  determination  "of  what  the 
investment  would  bear."  This  has  necessitated  an  evaluation  of  the  railroad 
properties  of  the  country,  an  undertaking  that  will  not  be  completed  for  many 
years.  The  intention,  underlying  this  appraisal,  is  to  limit  profiits,  by  a 
limitation  of  rates,  to  a  reasonable  return.  Recently,  to  quite  different  effect, 
the  "eastern  railroads"  were  granted  permission  to  raise  rates,  their  plea  being 
one  of  insufficient  profits.  Together  these  things  are  indications  of  the  devel- 
opment of  a  policy  of  limiting  railroad  dividends  to  a  "fair  figure"  and  of 
guaranteeing  this  modest  income.  In  future  it  will  most  likely  be  found  inex- 
pedient to  meet  the  exigencies  of  certain  dividends  from  a  changing  economic 
environment  by  a  manipulation  of  rates.  It  is,  therefore,  more  than  possible 
that  an  effort  will  be  made  to  accomplish  this  object  by  breaking  the  nexus 
between  dividends  and  earnings  from  particular  properties.  This  can  be 
done  by  the  substitution  of  general  for  particular  securities.  Such  a  general 
policy  involves  necessarily  a  regulation  of  the  investments  of  the  railroad. 

These  implications  of  legislation  and  administration  deserve  more  than 
passing  notice.  Our  devotion  to  individualism  is  still  strong;  our  faith  in 
the  efficacy  of  competition,  even  if  shaken  a  bit,  is  still  firm;  we  still  refuse 
to  discuss  government  ownership  as  a  practical  question.  But  despite  all  this, 
we  have  created  a  system  of  government  regulation  which  involves  supervis- 
ing accounts,  evaluating  property,  fixing  rates,  and  standardizing  service ; 
which  threatens  supervision  of  expenditures  and  investments;  and  which 
tends  to  limit  the  railroad  to  a  definite  guaranteed  return  on  its  investment. 
Control  is  very  rapidly  passing  into  the  hands  of  the  state.  The  step  to  the 
formal  assumption  of  management  and  ownership  is  but  a  short  one.  It  can 
be  accomplished  by  a  simple  substitution  of  government  bonds  for  railroad 
securities.  Are  we  destined  to  take  it?  If  we  do,  will  it  be  a  simple  matter 
of  conscious  choice?  Or  will  it  be  a  solution  that  has  been  forced  upon  us 
unwittingly  through  our  attempt  to  solve  isolated  railroad  problems  one  at  a 
time? 

Thus  it  has  come  about  that  one  "railroad  problem"  after  another  has 
been  "solved,"  only  to  leave  a  bigger  and  more  difficult  problem  in  its  place. 
The  question  of  government  ownership  is  more  intricate  than  any  of  its  prede- 
cessors. If  the  state  does  take  over  the  roads,  what  will  be  the  net  gain? 
Will  we  be  better  off  than  we  now  are?  Will  we  be  better  off  than  we  would 
have  been  had  we  never  embarked  on  a  course  of  regulation?  If  our  railroads 
are  socialized,  what  is  the  effect  likely  to  be  in  the  solution  of  our  other  prob- 
lems, for  instance  that  of  monopoly?  What  influence  is  such  a  step  likely  to 
exert  upon  our  theory  of  the  relation  of  the  state  to  industry  and  upon  our 
fundamental  "principles"  and  "concepts"?  Are  we  thus  for  the  last  time 
dealing  with  the  railroad  problem  in  isolation,  or  is  it  likely  to  continue  with 
us  in  ever-varied  forms?  Is  government  ownership  a  mere  means  of  merg- 
ing a  particular  problem  in  the  larger  problem  of  the  socialization  of  industry  ? 
After  government  ownership — what? 


346  CURRENT  ECONOMIC  PROBLEMS 

A.    THE  FUNDAMENTAL  FACTORS  OF  THE  PROBLEM 
173.     The  Extent  of  American  Railway  Interests^ 

BY  I.   LEO   SHARFMAN 

A  discussion  of  the  problems  of  railway  regulation  in  the  United 
States  may  well  begin  with  a  statement  of  the  extent  of  the  railway 
interests  to  be  regulated.  Some  conception  may  be  obtained  of  the 
magnitude  of  these  railway  interests  by  a  consideration  of  the 
extent  of  mileage,  the  amount  of  equipment,  the  number  of  employ- 
ees engaged  in  the  service,  the  amount  of  outstanding  securities 
representing  capital  invested,  the  number  of  passengers  and  tons 
of  freight  carried,  the  revenues  accruing  from  the  service,  the  ex- 
penditures involved  in  rendering  it,  and  the  earnings  distributed 
annually  as  a  result  of  railway  enterprise.  There  are  more  than 
250,000  miles  of  line  in  the  United  States,  representing  only  single 
track  mileage.  If  we  include  the  length  of  second,  third,  and  fourth 
tracks,  and  the  mileage  of  yard  tracks  and  sidings,  the  total  mileage 
operated  in  the  United  States  in  1910  was  351,767.  The  figures 
for  equipment  are  equally  stupendous.  There  were  58,947  loco- 
motives and  2,290,331  cars  devoted  to  the  service  rendered  by  Amer- 
ican railways.  The  number  of  employees  was  1,699,420 — the  larg- 
est number  of  wage-earners  engaged  in  any  single  American  in- 
dustry with  the  exception  of  agriculture.  The  outstanding  securi- 
ties amounted  to  $18,417,132,238,  representing  an  investment  in  rail- 
way transportation  which  is  likewise  second  only  to  agriculture. 
The  number  of  passengers  carried  during  the  year  1910,  earning 
revenue  for  the  railroads,  was  971,683,199;  the  number  of  tons  of 
freight  carried  during  the  same  year,  earning  revenue  for  the  rail- 
roads was,  1,849,900,101.  If  we  take  distance  into  consideration 
and  determine  the  number  of  passengers  and  the  number  of  tons 
of  freight  carried  one  mile,  the  figures  become  so  large  as  to  pass 
beyond  human  conception.  The  number  of  passengers  carried  one 
mile  was  32,338,496,329,  and  the  number  of  tons  of  freight  carried 
one  mile  was  255,016,910,451,  The  revenues  from  operation  amount- 
ed to  $2,750,667,435 ;  the  operating  expenditures  were  $1,822,630,- 
433 ;  and  the  earnings  actually  distributed  as  dividends  during  this 
single  year  amounted  to  $293,836,863.  The  immensity  of  these  fig- 
ures must  be  apparent  to  every  one,  and  no  further  comment  is 
necessary  to  indicate  the  vast  extent  of  American  railway  interests. 

'Adapted  from  an  unpublished  volume  entitled  Railway  Regulation,  soon 
to  be  published  by  the  LaSalle  Extension  University. 


RAILWAY  REGULATION  347 

174.     The  Dual  Nature  of  the  Railway  Corporation 

We  are  all  familiar  with  the  easygoing  classification  of  business 
enterprises  into  public  and  private.  There  is  something  quite  satis- 
fying about  the  ready  way  in  which  this  antithesis  permits  one  to 
call  the  corner  grocery  a  private  business  and  the  mail  service  a 
public  enterprise.  Since  the  two  classes  are  all-comprehensive  and 
mutually  exclusive,  it  is  quite  unfortunate  that  their  author  was 
not  possessed  of  the  supreme  pre-wisdom  to  make  provision  for 
the  railway  which  in  course  of  time  was  to  appear,  reach  gigantic 
proportions,  work  itself  into  the  whole  fabric  of  the  industrial  sys- 
tem, and  spoil  a  very  serviceable  antithesis.  For  the  railway  can 
be  properly  called  neither  a  private  nor  a  public  enterprise ;  it  par- 
takes of  the  nature  of  both. 

That  it  is  a  private  enterprise  is  the  more  evident.  You  know 
that  trains  are  run  by  a  private  corporation;  that  the  corporation 
sells  you  a  ticket,  thereby  making  a  contract  with  you,  to  transport 
you  from  New  York  to  Philadelphia ;  that  when  Hiram  Rankin's 
cow  is  run  over,  he  brings  suit  against  the  New  York  Central  & 
Hudson  River  Railroad  Company;  and  that  your  next-door  neigh- 
bor, James  Street,  regularly  receives  what  he  calls  a  dividend  on 
the  three  shares  of  preferred  stock  which  he  owns  in  the  Pennsyl- 
vania. So  far  as  its  actual  business  is  concerned,  it  appears  to  you 
that  a  railway  company  is  much  like  any  other  corporation. 

But  if  you  will  study  a  moment,  you  will  see  just  as  clearly 
that  the  business  is  of  a  public  nature.  You  remember  your  grand- 
father telling  you  how,  when  he  was  a  member  of  the  state  legis- 
lature back  in  the  forties,  he  helped  put  through  a  bill  which  appro- 
priated state  money  to  help  the  K.  &  W.  build  a  line  through  your 
part  of  the  state.  You  never  heard  of  the  state  helping  Simpkins, 
the  comer  grocer,  in  that  way.  You  remember,  too,  just  a  few 
years  ago,  that  when  the  L.R.  &  Q.  was  running  the  spur  out  to 
Dalton,  Rufus  Lunsford  would  not  sell  the  narrow  strip  of  land 
through  his  farm,  which  the  company  wanted  to  make  a  part  of 
their  right  of  way.  You  remember  that  he  said  that  he  was  just 
as  much  entitled  to  that  land  as  any  private  corporation  was  entitled 
to  its  property;  and  that  no  private  corporation  should  get  a  foot 
of  ground  belonging  to  him.  Yet  you  remember  how  it  turned 
out — that  there  was  a  trial;  that  the  lawyers  representing  the  rail- 
way said  that  the  company  has  been  clothed  with  the  right  of  "emi- 
nent domain,"  and  that  this  gave  them  the  right  to  take  Lunsford's 
property,  if  they  needed  it  to  complete  their  line,  provided  they 
paid  him  full  compensation  for  it.  You  know,  too,  that  the  rail- 
way has  no  right  to  refuse  to  handle  your  freight,  if  you  ofTer  it  to 


348  CURRENT  ECONOMIC  PROBLEMS 

them  and  if  you  comply  with  all  the  conditions.  Perhaps  you  do 
not  know  that  when  the  railway  first  came,  it  was  thought  of  as  a 
"rail"  way,  as  a  public  highway  upon  vvhich  each  man  should  be 
allowed  to  run  his  own  cars,  just  as  he  drove  his  own  carriage  or 
wagon  along  the  thoroughfare.  Of  course  you  see  that  technical 
difficulties  prevented  this  from  being  done  and  led  to  a  single  cor- 
poration being  granted  an  exclusive  right  to  run  trains  over  the 
road.  But,  in  making  the  grant  the  state  was  merely  meeting  the 
peculiar  situation.  It  was  not  surrendering  all  of  its  rights  to  the 
private  corporation.  Thus  you  see  that  the  railway  corporation  is 
of  a  public  as  well  as  of  a  private  nature. 

175.     The  Economic  Basis  of  Regulation^ 

BY  I.  LEO  SHARFMAN 

The  need  of  a  system  of  governmental  control  arises  from  the 
economic  characteristics  of  the  railway.  Most  of  the  important 
questions  involved  in  the  so-called  railroad  problem  can  be  traced 
to  the  economic  character  of  the  railway  business.  It  is  necessary, 
therefore,  to  indicate  the  general  nature  of  those  economic  partic- 
ularities and  their  most  striking  consequences. 

The  Monopolistic  Character  of  the  Railway  Business.  The  need 
of  regulation  depends  chiefly  upon  the  monopolistic  character  of  the 
railway  business.  In  ordinary  industrial  enterprises  the  existence 
of  competition,  when  free  and  unrestricted  by  artificial  means,  pro- 
vides an  automatic  force  for  the  protection  of  the  public.  High 
prices  and  large  profits  in  a  given  industry  tend  to  attract  additional 
capital  to  that  industry,  which  results,  in  the  long  run,  in  a  read- 
justment of  charges  and  a  reduction  of  net  returns.  In  like  manner, 
inefficient  service  and  goods  of  inferior  quality  cannot  permanently 
be  imposed  upon  the  public  because  a  policy  which  is  clearly  detri- 
mental to  the  interests  of  the  consumer  cannot  permanently  with- 
stand the  force-  of  competition.  The  railway  business,  on  the  other 
hand,  tends  to  be  operated  under  monopolistic  conditions.  To  some 
extent  railways  are  entirely  exempt  from  the  operation  of  compe- 
tition. The  amount  of  capital  necessary  for  the  construction  of  a 
railway  is  so  large  and  the  task  of  railway  building  is  so  substantial 
that  competition  is  always  relatively  slow  in  becoming  active.  Cap- 
italists will  not  unite  so  promptly  in  building  a  parallel  road  because 
of  the  large  sums  that  must  be  risked  in  the  enterprise;  and  even 
when  they  decide  to  enter  upon  such  an  undertaking,  the  work  of 

"Adapted  from  an  unpublished  volume  entitled  Railway  Regulation,  soon 
to  be  published  by  the  LaSalle  Extension  University. 


RAILWAY  REGULATION  349 

construction  requires  so  much  time  that  the  appearance  of  active 
competition  is  still  further  delayed.  Moreover,  even  when  the  par- 
allel road  is  built,  it  actually  competes  with  the  original  line  only  at 
certain  points,  usually  the  more  important  cities,  while  at  inter- 
mediate points  the  lines  separate  and  pass  through  numerous  small 
communities  which  have  no  other  railway  facilities.  At  these  non- 
competing  points,  then,  the  railways  usually  enjoy  a  monopoly  of 
local  traffic ;  and  while  the  number  of  non-competing  points  is  grad- 
ually being  reduced  by  the  construction  of  new  steam  roads  and  the 
multiplication  of  electric  railway  lines,  doubtless,  because  of  the 
very  nature  of  the  railway,  there  will  always  be  many  localities 
which,  in  the  absence  of  government  control,  will  be  at  the  mercy 
of  one  transportation  agency.  In  part,  therefore,  the  railway  busi- 
ness is  clearly  monopolistic  in  character. 

The  Nature  of  Railzvay  Competition.  But  the  railway  business 
tends  to  be  carried  on  under  monopolistic  conditions  even  when 
competition  does  exist,  because  of  the  character  of  railway  competi- 
tion. Railway  rivalry  tends  to  be  abnormally  keen  and  competition 
ruinous.  This,  in  turn,  leads  to  cooperation  in  various  forms,  and 
the  inevitable  result  follows  that  railway  competition  becomes  self- 
destructive.  Competing  railway  companies,  weary  of  the  keen 
struggle  which  invariably  ensues  when  competition  becomes  active, 
either  assent  to  a  truce  whereby  competition  between  them  is  abol- 
ished and  an  agreement  is  reached  for  the  maintenance  of  rates, 
or  they  continue  their  warfare  until  one  of  the  roads  is  driven  to 
insolvency,  and  the  unsuccessful  line,  upon  reorganization,  is  taken 
over  by  its  victorious  rival.  In  either  case  effective  competition 
is  destroyed  and  monopoly  conditions  are  established.  The  basis 
of  this  ruinous  competition  is  to  be  found  in  two  fundamental 
economic  characteristics  of  the  railway  business : 

Joint  Cost  and  Railway  Management.  The  services  of  a  rail- 
way are  rendered  to  a  very  large  degree  at  joint  cost.  From  one- 
half  to  three-quarters  of  a  railway's  expenditures  must  be  incurred 
regardless  of  the  performance  of  any  particular  service.  In  order 
to  conduct  transportation  at  all,  a  roadbed  must  be  provided,  tracks 
must  be  laid,  terminals  must  be  built.  This  plant  is  equally  neces- 
sary for  the  transportation  of  passengers  and  freight,  and  express 
and  mail  matter.  Moreover,  it  is  equally  necessary  for  the  trans- 
portation of  different  classes  of  passengers  and  different  kinds  of 
treight.  The  expenditures  for  the  fundamental  purpose  of  pro- 
viding the  plant  of  a  railway  enterprise  create  the  fixed  charges 
of  the  business :  and  these  fixed  charges,  the  interest  on  the  capital 
invested  in  the  construction  of  the  railway,  form  a  part  of  the 


350  CURRENT  ECONOMIC  PROBLEMS 

cost  of  every  service  rendered  by  that  railway.  As  far  as  expendi- 
tures for  plant  are  concerned,  all  railway  operations  are  conducted 
at  joint  cost.  But  even  the  operating  expenses  are  largely  joint. 
The  roadbed  and  equipment  must  be  maintained  in  a  state  of  reason- 
able repair  and  efficiency,  and  many  of  the  employees  and  much  of 
the  material  necessary  for  conducting  transportation  must  be  pro- 
vided and  most  of  the  general  administrative  expenses  must  be 
met,  regardless  of  the  amount  or  the  kind  of  traffic  carried  by  the 
railway.  In  other  words,  a  substantial  proportion  of  the  operating 
expenses,  like  the  fixed  charges,  are  constant.  It  is  practically  im- 
possible, therefore,  for  the  railway  manager  to  ascertain  the  exact 
cost  of  a  given  service.  Rate  making  must  necessarily  involve  a 
large  degree  of  guesswork,  though  it  is  true  that  this  guesswork 
is  entrusted  to  experts.  Railway  officials  have  no  means  of  de- 
termining with  certainty  that  rates  have  been  reduced  to  unprofit- 
able limits.  Under  the  stress  of  keen  competition,  then,  conditions 
are  decidedly  favorable  to  ruinous  rate-cutting:  and  cutthroat  com- 
petition in\'ariably  becomes  self-destructive. 

Increasing  Returns  and  Railway  Policy.  Railway  operations 
are  so  largely  conducted  at  joint  cost  because  a  very  large  propor- 
tion of  railway  expenditures  are  fixed  or  constant.  If  a  railway  is 
built  and  equipped  and  is  carrying  a  given  amount  of  traffic,  it  can 
usually  handle  a  vastly  increased  quantity  of  business  at  a  relatively 
slight  additional  expense.  Within  very  wide  limits,  a  given  plant 
and  equipment  will  accommodate  a  large  as  well  as  a  small  amount 
of  traffic,  and  the  only  additional  cost  involved  in  handling  an  in- 
crease in  traffic  will  consist  in  that  portion  of  the  operating  ex- 
penses which  varies  with  the  amount  and  kind  of  service  rendered. 
In  other  words,  the  expenditures  of  a  railway  company  do  not 
keep  pace  with  the  services  which  it  performs ;  an  increase  in 
trafiQc  does  not  involve  a  proportionate  increase  in  railway  ex- 
penditures. If  follows,  then,  that  with  each  increase  in  the  amount 
of  traffic  carried,  the  cost  per  unit  decreases ;  and  the  net  revenues 
of  a  railway  increase  faster  than  the  growth  of  its  traffic.  The  rail- 
way business  is  subject  to  the  law  of  increasing  returns:  every  in- 
crease in  traffic  results  in  more  than  a  proportionate  increase  in 
profits.  Railway  traffic  managers,  therefore,  work  under  a  powerful 
incentive  to  increase  the  volume  of  their  business,  and  the  compe- 
tition for  traffic  is  intense.  In  fact,  the  passion  for  traffic  becomes 
the  controlling  passion  of  the  railway  business.  Traffic  managers 
consider  it  their  most  urgent  duty  to  get  business — to  get  it  at  the 
highest  rates  possible,  but  in  any  event  to  get  it.     The  profitable 


RAILWAY  REGULATION  351 

limit  of  rate  reduction  is  so  uncertain,  because  railway  expenditures 
are  largely  joint,  and  the  advantage  of  extensive  traffic  is  so  great, 
because  railway  expenditures  are  largely  constant,  that  there  is  a 
natural  and  compelling  tendency  on  the  part  of  railway  officials  to 
reduce  rates  to  whatever  point  may  be  necesary  in  order  to  attract 
business  from  competing  lines.  Ruinous  rate  wars  follow  and  com- 
petition tends  to  destroy  itself.  These  conditions  lie  at  the  basis  of 
the  abnormal  character  of  railway  competition  which  almost  in- 
variably leads  to  railway  operation  under  monopolistic  conditions. 

Railway  Competition  and  Discriminatory  Practices.  The  keen 
rivalry  for  business  leads  not  merely  to  rate  wars  and  general  rate 
cuttings,  but  to  discriminatory  practices  as  well.  The  passion  for 
business  is  so  intense  that  the  traffic  manager  will  resort  to  any 
means  in  order  to  get  it.  If  the  amount  of  railway  traffic  can  be 
extended  and  hence  the  size  of  railway  profits  disproportionately 
increased  by  means  of  granting  special  privileges  in  the  transpor- 
tation of  one  commodity  as  compared  with  another,  or  in  the  case 
of  one  person  or  locality  as  compared  with  competing  shippers  or 
markets,  railway  officials  will  not  hesitate  long  to  resort  to  these 
discriminatory  practices.  The  history  of  American  railways,  and 
of  our  monopolistic  industrial  combinations  or  so-called  trusts,  di- 
vulges no  greater  evil  than  the  granting  of  railway  discriminations 
in  rates  and  service  for  the  benefit  of  one  person,  locality,  or  kind 
of  traffic,  to  the  prejudice  and  disadvantage  of  rival  shippers,  places, 
and  industries.  ,The  motive  or  stimulus  for  these  practices  lies  in 
the  keen  desire  for  additional  business,  with  its  disproportionate  in- 
crease in  railway  profits.  Discrimination  has  been  one  of  the  most 
baneful  as  well  as  one  of  the  most  certain  effects  of  railway  com- 
petition. 

Railway  Discrimination  and  the  Public  Welfare.  The  danger 
as  well  as  the  injustice  of  discriminatory  practices  cannot  be  over- 
emphasized. If  our  industrial  life  is  to  reach  its  natural  and  most 
efficient  economic  development,  there  must  be  freedom  of  enter- 
prise and  fairness  of  treatment  for  all  persons,  all  sections,  and 
all  undertakings.  In  a  sense,  transportation  is  a  fundamental  in- 
,  dustry,  underlying  all  others ;  for  it  is  essential  to  the  conduct  of 
all  business  and  goes  far  towards  determining  the  direction  and 
conditions  of  industrial  activity.  The  item  of  transportation,  what- 
ever it  may  be,  is  one  of  the  elements  in  all  costs,  and  the  outcome 
of  competition  between  different  producers  may  be  largely  affected 
by  any  divergence  in  railway  rates  which  must  be  paid  by  each 
of  two  or  more  competitors.     It   follows  clearly,  then,   that  the 


352  CURRENT  ECONOMIC  PROBLEMS 

railway  officials  who  make  transportation  rates  exercise  a  tre- 
mendous power.  By  the  soundness  of  their  adjustment  of  rates 
and  by  the  degree  of  fairness  with  which  established  rates  are 
observed,  the  railways  may  profoundly  affect — or  absolutely  de- 
termine even — the  prosperity  of  individuals,  of  industries,  of  cities 
and  towns,  or  of  entire  sections  of  the  country.  By  discriminating 
between  competing  shippers,  they  may  destroy  the  business  of  one 
and  build  up  that  of  another,  making  one  man  rich  and  another 
poor.  By  stimulating  or  discouraging  a  particular  class  of  traffic 
they  may  increase  or  diminish  the  importance  of  industries  and  the 
extent  of  production  of  particular  articles  of  commerce,  shaping 
the  direction  of  industrial  activity.  By  discriminating  among  cities 
and  towns,  they  may  cause  one  to  grow  and  another  to  decay,  de- 
termining the  commercial  importance  of  business  centres.  By 
modifying  their  rate  schedules  in  special  instances,  they  may  de- 
termine the  location  of  industries,  guiding  the  movements  of  popu- 
lation and  affecting  the  prosperity  and  welfare  of  extensive  local- 
ities. By  these  unfair  practices  the  railways  also  have  it  within 
their  power  to  build  up  industrial  monopoly;  and  the  most  power- 
ful of  the  trusts  against  which  the  people  are  now  struggling  made 
their  first  advances  towards  control  of  the  market  through  the 
agency  of  special  favors  in  the  form  of  railway  discriminations. 


176.     The  Futility  of  Railway  Competition^ 

BY  ARTHUR  T.  HADLEY 

We  have  been  taught  to  regard  competition  as  a  natural,  if  not 
necessary,  condition  of  all  healthful  business  life.  We  accept,  almost 
without  reserve,  the  theory  that,  under  open  competition,  the  value 
of  different  goods  will  tend  to  be  proportional  to  their  cost  of  pro- 
duction. According  to  this  idea,  if  the  supply  of  a  particular  kind 
of  goods  is  short,  and  the  price  comes  to  exceed  cost  of  production, 
outside  capital  will  be  attracted  into  the  business  until  the  supply 
is  sufficiently  increased  to  meet  the  wants  of  the  market.  But  as 
soon  as  this  point  is  passed,  and  the  price  begins  to  fall  below  the 
cost  of  production,  people  will  refuse  to  produce  at  a  disadvantage, 
the  supply  will  be  lessened,  and  the  price  will  rise  to  its  normal 
figure.  If  all  this  be  true,  competition  furnishes  a  natural  regulator 
of  prices,  with  which  it  is  wicked  to  interfere. 

'Adapted  from  Railroad  Transportation:  Its  History  and  Its  Laws,  6^74 
Copyright  by  G.  P.  Putnam's  Sons  (1885). 


RAILWAY  REGULATION  353 

This  may  once  have  been  true,  but  it  is  not  true  today,  that 
people  find  it  to  their  interest  to  refuse  to  produce,  if  price  drops 
below  cost.    To  stop  producing  often  involves  the  greater  loss. 

Let  us  take  an  example  from  the  railway  business.  A  railroad 
connects  two  places  not  far  apart,  and  carries  from  one  to  the  other 
100,000  tons  of  freight  a  month  at  25  cents  a  ton.  Of  the  $25,000 
thus  earned,  $10,000  is  paid  out  for  the  actual  expenses  of  running 
the  train  and  loading  and  unloading  the  cars ;  $5,000  for  repairs  and 
general  expenses;  the  remaining  $10,000  pays  the  interest  on  the 
cost  of  construction.  Only  the  first  of  these  items  varies  in  pro- 
portion to  the  amount  of  business  done;  the  interest  is  a  fixed 
charge,  and  repairs  have  to  be  made  with  almost  equal  rapidity, 
whether  the  material  wears  out,  rusts  out,  or  washes  out.  Now 
suppose  a  parallel  line  is  built,  and  in  order  to  secure  some  of  the 
business  offers  to  take  it  at  20  cents  a  ton.  The  old  road  must  meet 
the  reduction  in  order  not  to  lose  its  business,  even  though  the  new 
figure  does  not  leave  it  a  fair  profit  on  the  investment;  better  a 
moderate  profit  than  none  at  all.  The  new  road  reduces  to  15  cents ; 
so  does  the  old  road.  A  15-cent  rate  will  not  pay  interest  unless 
there  are  new  business  conditions  developed  by  it;  but  it  will  pay 
for  repairs  which  otherwise  would  be  a  dead  loss.  The  new  road 
makes  a  still  further  reduction  to  11  cents.  This  is  better  than 
nothing.  If  you  take  at  11  cents  freight  that  costs  you  25  cents  to 
handle,  you  lose  14  cents  on  every  ton  you  carry.  If  you  refuse 
to  take  it  at  that  rate,  you  lose  15  cents  on  every  ton  you  do 
not  carry.  For  your  charges  for  interest  and  repairs  run  on,  while 
the  other  road  gets  the  business. 

Under  competition  such  cases  are  of  constant  occurrence,  and 
almost  as  a  matter  of  course  when  one  of  the  roads  is  bankrupt. 
"Business  at  any  price  rather  than  no  business  at  all"  is  the  motto 
of  such  a  road.  It  has  long  ceased  to  pay  interest;  it  can  pay  for 
repairs  by  receiver's  certificates;  and  it  will  take  freight  at  almost 
any  price  that  will  pay  for  the  men  to  load  the  goods  and  the  coal 
to  bum  in  the  engine.  And  it  is  to  be  observed  that  when  a  com- 
peting road  does  not  carry  the  war  to  this  point,  it  is  not  a  com- 
petitive rate.  They  may  agree  on  a  25-cent  rate,  thinking  it  will 
be  a  reasonable  and  a  paying  one ;  but  such  a  rate  is  actually  deter- 
mined by  combination,  even  though  they  take  cost  of  service  into 
account.  The  theory  that  when  payment  falls  below  cost  active 
competition  will  cease  fails.  This  is  because  far  below  the  point 
where  it  pays  to  do  your  own  business  it  pays  to  steal  business  from 
another  man.    The  influx  of  new  capital  will  cease;  but  the  fight 


354  CURRENT  ECONOMIC  PROBLEMS 

will  go  on,  either  until  the  old  investment  and  machinery  are  worn 
out,  or  until  a  pool  of  some  sort  is  arranged.  This  is  not  confined 
to  the  railway  business.  Wherever  there  are  large  permanent  invest- 
ments of  capital  we  see  the  same  cause  at  work  in  the  same  way. 

There  is  a  marked  difference  between  mercantile  competition, 
such  as  was  considered  by  those  who  established  the  old  law  of 
competition,  and  the  competition  of  railroads  or  factories,  such  as 
we  have  been  considering.  In  the  former  case  its  action  is  prompt 
and  healthful,  and  does  not  go  to  extremes.  If  Grocer  A  sells  goods 
below  cost.  Grocer  B  need  not  follow  him,  but  simply  stop  selling 
for  a  time.  For  (i)  This  involves  no  great  present  loss  to  B. 
When  his  receipts  stop,  most  of  his  expenses  also  stop.  (2)  It 
does  involve  present  loss  to  A.  If  he  is  selling  below  cest,  he  loses 
more  money,  the  more  business  he  does.  (3)  It  cannot  continue 
indefanitely.  If  A  returns  to  paying  prices,  B  can  again  compete. 
If  A  continues  to  do  business  at  a  loss  he  will  become  bankrupt, 
and  B  will  find  the  field  clear  again. 

But  if  Railroad  A  reduces  charges  on  competitive  business. 
Railroad  B  must  follow,  (i)  It  involves  a  great  present  loss  to 
stop.  If  a  railroad's  business  shrinks  to  almost  nothing,  a  large 
part  of  its  expenses  run  on  just  the  same.  Interest  charges  accumu- 
late ;  office  expenses  cannot  be  suddenly  contracted ;  repairs  do  not 
stop  when  trafBc  sinks ;  for  they  are  rendered  necessary  by  weather 
as  well  as  by  wear.  (2)  If  B  abandons  the  business,  A's  reduc- 
tions of  rates  will  prove  no  loss.  The  expense  of  a  large  business 
is  proportionately  less  than  that  of  a  small  one,  A  rate  which  was 
below  cost  on  100,000  tons  may  be  a  paying  one  on  200,000.  (3) 
Profitable  or  not,  A's  competition  may  be  kept  up  indefinitely.  The 
property  may  go  into  bankruptcy,  but  the  railroad  stays  where  it  is. 
It  only  becomes  a  more  reckless  and  irresponsible  competitor. 

The  competition  of  different  stores  finds  a  natural  limit.  It 
brings  rates  down  near  to  cost  of  service,  and  then  stops.  The  com- 
petition of  railroads  or  factories  finds  no  such  natural  limit.  Wher- 
ever there  is  a  large  permanent  investment,  and  large  fixed  charges, 
competition  brings  rates  down  below  cost  of  service.  The  competi- 
tive business  gives  no  money  to  pay  interest  or  repairs.  Sometimes 
the  money  to  pay  for  these  things  comes  out  of  the  pockets  of  other 
customers,  who  do  not  enjoy  the  benefit  of  the  competition,  and  are 
charged  much  higher  rates.  Then  we  have  the  worst  forms  of  dis- 
crimination. Sometimes  the  money  cannot  be  obtained  from  any 
customers  at  all.  Then  we  have  bankruptcy,  ruin  to  the  investor, 
and — when  these  things  happen  on  a  large  scale — a  commercial 
crisis. 


RAILWAY  REGULATION  355 

B.     DISCRIMINATORY  PRACTICES  OF  THE 
RAILROADS 

177.     Types  of  Railway  Discrimination* 

BY  GEORGE   H.  I^EWIS 

Discriminations  are  principally  of  three  kinds:  first,  discrimi- 
nations between  commodities,  leading  to  freight  classifications;  sec- 
ond, discrimination  between  places,  developing  the  "long-and-short- 
haul"  problem ;  third,  discrimination  between  individuals. 

The  first  class  of  discriminations  has  gradually  grown  up  from 
the  practical  experience  of  railroad  men.  In  the  earlier  years  of 
railroading  the  principles  of  classifying  freight  according  to  the 
character  and  value  of  the  articles  transported  were  little  practiced. 
But  it  soon  became  evident  that  cheap  and  bulky  articles  must  be 
carried  at  a  low  rate.  But,  if  all  rates  were  reduced  to  the  standard 
of  the  cheaper  goods,  the  road  could  not  be  maintained.  To  meet 
this  exigency  a  charge  of  higher  rates  was  made  on  the  more  costly 
commodities.  In  this  way  has  gradually  grown  up  the  practice  of 
freight  classification.  The  principle  underlying  it  is  "charging  what 
the  traffic  will  bear."  Proper  classification  alike  benefits  the  roads 
and  promotes  the  general  good.  But  the  principle  is  sometimes 
abused.  For  instance  serious  discrimination  can  be  effected  by 
placing  in  different  classes  two  commodities  physically  alike  or  sub- 
stitutable  for  each  other. 

The  second  class  of  discriminations  is  between  places.  It  may 
happen  that  a  director  or  prominent  officer  of  a  road  is  pecuniarily 
interested  in  one  of  two  competing  towns,  and  hence  cheaper  rates 
are  accorded  that  place.  In  newer  sections  of  the  country,  specu- 
lations in  real  estate  by  railroads,  or  by  their  officers,  have  often  led 
to  such  discriminations. 

More  important  are  those  involved  in  what  is  known  as  the 
"long  and  short  haul."  This  is  the  practice  of  giving  to  certain 
points  on  a  railroad  line  lower  rates  than  are  accorded  to  interme- 
diate points  which  are,  of  course,  nearer  each  other.  To  illustrate : 
The  rates  for  a  carload  of  freight  from  New  York  to  points  in  Colo- 
rado are  much  higher  than  the  rates  on  the  same  freight  carried 
through  the  same  town  to  San  Francisco,  more  than  a  thousand 
miles  farther.  The  regular  traffic  to  San  Francisco  is  about  five- 
eighths  of  the  rate  to  Ogden.  In  other  words,  the  railroad  charges 
for  not  hauling  a  carload  of  freight  one  thousand  miles  from  Ogden 
to  San  Francisco. 

*.\dapted  from  National  Consolidation  of  the  Railways  in  the  United 
States,  80-105.    Copyright  by  Dodd,  Mead  &  Co.  (1893). 


356  CURRENT  ECONOMIC  PROBLEMS 

Another  example  will  make  even  clearer  the  nature  of  this  dis- 
crimination. A  friend  of  mine  a  few  years  ago  bought  some  anthra- 
cite coal  in  Chicago.  He  shipped  it  to  Omaha,  and  then  reshipped 
it  to  Grinnell,  Iowa,  225  miles  in  an  almost  direct  line  toward  Chi- 
cago. He  was  enabled  thus  to  deliver  the  coal  in  that  place  cheaper 
than  local  coal  dealers  could  supply  it,  although  it  had  been  hauled- 
nearly  three  times  the  distance  necessary  to  bring  it  to  Grinnell 
directly. 

Thus  the  excessively  low  rates  made  to  certain  competitive  points 
give  an  overwhelming  advantage  to  shippers  located  there,  and,  as 
a  result,  business  men  are  attracted  to  these  points  in  great  numbers. 
Likewise  business  establishments  are  driven  away  from  points  hav- 
ing excessively  high  rates.  To  illustrate :  A  large  factory  for 
making  barbed  wire,  located  in  the  city  of  Des  Moines,  abandoned 
its  buildings  and  transferred  its  establishment  to  Chicago,  finding 
that  it  saved  a  large  sum  on  every  carload  that  was  shipped,  although 
the  wire  was  mainly  carried  through  its  old  location,  360  miles 
nearer  the  Pacific  Coast  than  Chicago.  Cases  like  this  have  been 
abundant  throughout  the  West.  The  long-and-short-haul  practice 
has  been  one  of  the  factors  which  have  taken  people  from  the  small 
towns  and  crowded  them  into  great  cities. 

The  third  class  of  discriminations  is  that  in  favor  of  or  against 
individuals.  The  principal  device  used  in  effecting  this  has  been 
the  well-known  rebate.  By  this  means  favored  shippers  have  been 
able  to  pay  higher  prices  for  grain  or  to  sell  flour  for  lower  prices 
than  their  competitors  and  still  grow  rich.  The  most  striking  ex- 
ample is  that  of  the  Standard  Oil  Company,  to  which  rebates 
amounting  to  $10,000,000  were  paid  in  sixteen  months.  The  com- 
pany gained  its  immense  wealth  largely  from  a  skilful  use  of  this 
class  of  discriminations.  But  the  immensity  of  this  serves  to  con- 
ceal the  incalculably  larger  aggregate  amount  of  rebates  and  draw- 
backs paid  in  the  cities  and  towns  throughout  the  South  and  West. 
In  a  single  town  in  Iowa  judgments  for  nearly  $40,000  were  recov- 
ered against  a  single  railroad  for  illegal  discriminations  in  that  town 
alone.  It  is  estimated  that  the  total  amount  of  these  discriminations 
in  northwestern  Iowa  will  reach  $1,000,000.  These  discriminations 
have  all  been  subsequent  to  the  Interstate  Commerce  Act. 

Old  forms  of  discrimination  are  undoubtedly  ceasing.  But  in 
the  stress  of  competition  which  the  system  of  private  ownership  of 
rival  roads  always  necessitates,  new  devices  and  new  schemes  of 
evasion  of  the  law  are  constantly  arising  in  spite  of  the  act. 


RAILWAY  REGULATION  357 

178.     Discriminations  between  Commodities^ 

BY  ALBERT  N.  M^RRITT 

Many  instances  of  sudden  and  arbitrary  changes  in  the  differ- 
entials upon  competing  classes  of  commodities  might  be  given,  and 
frequently  the  public  has  suffered  severe  loss  in  property  values  as 
the  result  of  such  actions.  Take  the  case  of  the  recent  advance  in 
the  rate  on  corn-meal  from  Kansas  points  to  Texas.  For  ten  years 
the  rate  on  com-meal  had  been  three  cents  higher  than  the  rate  on 
com.  On  the  basis  of  this  differential  the  Kansas  millers  had 
found  themselves  able  to  compete  with  the  Texas  millers,  and  a 
large  portion  of  the  corn-meal  used  in  Texas  was  ground  in  Kansas. 
In  January,  1905,  at  the  instigation  of  the  millers  of  Texas,  the 
Railroad  Commission  of  that  state  announced  a  hearing  for  the 
purpose  of  determining  whether  intrastate  grain  rates  should  be 
reduced.  In  order  to  prevent  this,  the  railroads  went  to  the  millers 
and  made  a  bargain  with  them.  If  the  millers  would  agree  to  drop 
their  complaint  before  the  Texas  Commission,  the  railroads,  on  their 
part,  would  advance  the  rate  on  corn-meal  so  as  to  exclude  the 
Kansas  millers  from  the  Texas  market.  The  bargain  was  car- 
ried out  to  the  letter.  The  millers  failed  to  appear  before  the 
Commission  upon  the  date  set  for  the  hearing,  and  the  grain  rates 
within  the  state  were  not  reduced,  while  on  the  19th  of  February, 
the  railroads  fulfilled  their  part  of  the  contract  by  advancing  the 
rate  on  corn-meal  by  an  average  of  53^  cents  per  100  lbs.,  without 
any  corresponding  increase  in  the  rate  on  corn.  The  result  was 
that  the  Kansas  millers  were  practically  prohibited  from  shipping 
any  com-meal  into  the  State  of  Texas.  Thus  the  principal  market 
of  a  very  important  industry  of  Kansas  was  swept  away  by  the 
stroke  of  a  pen.  Not  only  will  the  Kansas  millers  lose,  but  the 
Texas  consumers  will  lose  also.  Texas  is  unsuited  for  carrying  on 
the  milling  industry.  Mills  were  introduced  into  Texas  more  than 
twenty  years  ago.  Yet  the  Kansas  mills,  handicapped  as  they  were 
by  a  differential  of  three  cents  per  100  lbs.,  found  themselves  able 
to  compete  with  the  millers  of  Texas  in  supplying  that  market. 
The  Texas  millers  have  now  secured  the  monopoly  which  they  de- 
sired, and  the  Texas  consumers  will  pay  for  it  in  the  price  of  meal. 

On  one  occasion  the  railroads  threatened  to  destroy  the  whole 
export  flour  industry  of  the  Northwest.  The  rates  on  wheat  and 
flour  had  been  the  same  for  many  years.  Suddenly  the  roads  ad- 
vanced the  rate  on  flour  till  they  exceeded  those  on  wheat  by  from 

"Adapted  from  Federal  Regulation  of  Railroad  Rates,  34-36.  Copyright 
by  Hart,  Schaffner  &  Marx  (1907)- 


358  CURRENT  ECONOMIC  PROBLEMS 

four  to  eleven  cents  per  loo  lbs.  The  result  was  that  the  exports 
of  flour  instantly  fell  off  as  compared  with  those  of  wheat.  As 
long  as  these  rates  prevailed,  the  Western  millers  were  entirely 
excluded  from  any  share  in  the  export  flour  trade.  Not  only  did 
the  milling  industry  of  that  section  suffer,  but  also  the  resources  of 
the  country  were  weakened.  Experts  have  declared  that  a  most  im- 
portant factor  in  maintaining  the  fertility  of  the  soil  is  the  con- 
sumption of  the  by-products  of  the  grain  near  the  point  of  produc- 
tion. But  if  the  wheat  is  exported  instead  of  being  ground  in  the 
Northwest,  such  products  as  the  bran  and  the  shorts  are  consumed 
in  Europe  instead  of  in  this  country,  as  they  would  be  if  the  wheat 
were  ground  at  home. 

Other  cases  of  unjust  discrimination  between  competing  classes 
of  commodities  have  been  of  frequent  occurrence.  Thus  two  kinds 
of  soap,  though  substantially  similar  in  price,  bulk,  and  value,  were 
carried  at  different  rates.  In  another  case,  common  soap  was  car- 
ried at  33  cents  per  loo  lbs.,  while  73  cents  was  charged  for  Pear- 
line,  a  competitor  of  soap. 

179.     Discriminations  in  the  Transportation  of  OiP 

Discriminations  in  the  transportation  of  oil  embrace  a  variety  of 
forms,  the  most  important  of  which  are  enumerated  below. 

I.  The  most  important  form  of  discrimination  is  the  use  of 
secret  or  semisecret  rates.  The  Standard  Oil  Company  has  repeat- 
edly asserted  that  since  the  passage  of  the  Interstate  Commerce  Act 
in  1887  it  has  received  no  rebate.  The  investigations  of  the  Bureau 
have  discovered  no  rebates  in  this  technical  sense.  But  discrimina- 
tions fully  as  effective  have  been  made  in  behalf  of  the  Standard 
by  means  of  secret  rates  concealed  through  other  methods.  The 
secret  rates  enjoyed  by  the  Standard  have  almost  all  been  made 
from  points  where  the  company  is  the  only  shipper.  In  such  a  case, 
however,  it  is  just  as  discriminatory  and  just  as  injurious  to  the 
interests  of  competitors  as  if  they  were  charged  higher  rates  for 
the  same  hauls.  The  secrecy  leaves  the  independent  refiner  in  the 
dark  as  J:o  the  most  important  factor  affecting  competition  in  com- 
mon markets.  To  consummate  the  unfairness  it  is  obviously  not 
necessary  that  the  independent  should  actually  ship  at  the  higher 
rate  while  the  Standard  ships  at  the  lower.  The  evil  is  accomplished 
even  more  effectively  if  the  existence  of  the  lower  rate  allows  the 
Standard  to  get  to  a  common  market  while  the  rate  quoted  to  the 
independent  is  so  high  that  he  is  absolutely  prevented  from  shipping 

'Adapted  from  Report  of  the  Commissioner  of  Corporations  on  the  TranS' 
portation  of  Petroleum,  1-31  (1906), 


RAILWAY  REGULATION  359 

there.  The  secret  rates  already  discovered  by  the  Bureau  represent 
a  direct  saving  to  the  Standard  of  many  hundreds  of  thousands  of 
dollars  annually.  As  a  result  the  Standard  has  been  able  to  sell  oil, 
where  necessary  to  meet  competition,  at  prices  which  were  profit- 
able to  itself,  but  w-hich  left  no  profit  to  a  competitor.  Having  thus 
destroyed  competition  in  large  sections  of  the  country,  the  Standard 
there  charges  prices  several  cents  above  the  cost  of  manufacture. 
Thus  the  Standard  has  been  able  to  obtain  monopoly  profits  of  large 
amount. 

Another  device  has  been  the  use  of  secret  state  rates  in  combi- 
nation with  interstate  rates,  more  or  less  open  in  character,  to  give 
a  total  rate  much  less  than  the  through  published  rate  from  the 
initial  point  of  shipment  to  the  final  destination.  There  are  other 
cases  in  which  interstate  shipments  of  oil  have  been  made  on  a 
single  through  rate  which  has  not  been  published  or  filed.  There 
is  a  further  important  class  of  cases  where  rates,  technically  filed 
in  compliance  with  law,  are  not  made  effectively  public,  and  cannot 
be  ascertained  by  shippers  with  the  exercise  of  reasonable  diligence. 
There  are  two  sources  of  information  for  the  ordinary  shipper: 
inquiry  at  the  offices  of  the  railroad  company,  and  the  files  of  the 
Interstate  Commerce  Commission.  The  local  freight  agent  cannot 
be  expected  to  have  knowledge  of  all  possible  combinations  of  rates ; 
or  it  may  be  the  wilful  intent  of  the  railroad  company  to  withhold 
information.  The  mass  of  tariffs  filed  by  the  railways  with  the 
Interstate  Commerce  Commission  presents  a  problem  so  great  as 
to  be  necessarily  insoluble  by.  the  ordinary  shipper.  The  matter  is 
complicated  by  deliberate  action  on  the  part  of  the  railroads.  Tar- 
iffs are  made  to  read  from  unexpected  and  improbable  points,  nam- 
ing rates  which  conflict  with  those  conspicuously  named  from  the 
neighboring  points  as  to  which  inquiry  would  ordinarily  be  made. 
In  other  cases  unexpected  and  improbable  combinations  of  local 
rates  are  made  which  are  lower  than  the  conspicuously  published 
through  rates  from  the  point  of  origin  to  the  point  of  destination. 
Circuitous  and  unusual  routes  are  selected  in  some  cases  in  order 
to  make  up  these  combinations.  The  concealment  is  made  the  more 
effective  by  the  frequent  republication  of  the  higher  rates  by  the 
expected  routes,  and  the  use  of  lower  rates  by  improbable  routes. 

For  the  purpose  of  more  effectively  concealing  the  secret  rates 
given  the  Standard,  railroads  have  frequently  used  peculiar  meth- 
ods of  billing  and  accounting.  In  some  cases  oil  has  been  "blind 
billed,"  that  is  to  say,  the  way-bills  have  been  made  out  showing  the 
kind  of  product  transported  and  its  weight,  but  without  showing, 
as  is  the  usual  custom,  any  freight  rate  or 'the  amount  of  freight 


36o  CURRENT  ECONOMIC  PROBLEMS 

charges.  In  such  instances,  the  collection  of  freight  is  ordinarily 
made,  not  by  the  local  agent,  but  through  the  central  office,  by  the 
presentation  to  the  Standard  of  a  summary  bill  showing  the  amount 
of  freight  charges  at  the  secret  rate.  In  other  instances  the  oil  is 
handled  in  the  same  manner  as  other  shipments  are  ordinarily  han- 
dled, the  secret  rate  being  used  directly,  instead  of  the  published 
rate,  in  the  way-bills  and  records  of  the  railroads,  and  the  collection 
of  charges  being  made  in  the  ordinary  manner  through  the  local 
freight  agent.  Of  course  there  is  danger  in  this  case  that  the  rate 
will  leak  out. 

II.  Secret  discriminations  are  hardly  more  important  than  open 
discriminations  in  rates.  Almost  everywhere  the  rates  from  the 
shipping  points  used  exclusively  by  the  Standard  are  relatively  lower 
than  the  rates  from  the  shipping  points  of  its  competitors.  Rates 
have  been  made  low  to  let  the  Standard  into  markets,  or  they  have 
been  made  high  to  keep  their  competitors  out  of  markets.  Trifling 
differences  in  distances  have  been  made  an  excuse  for  large  differ- 
ences in  rates  favorable  to  the  Standard,  while  large  differences  in 
distances  are  ignored  where  they  are  against  the  Standard.  Some- 
times connecting  roads  make  through  rates  on  oil  which  are  lower 
than  the  combination  of  lower  local  rates;  sometimes  they  refuse 
to  do  so ;  but  in  either  case  their  policy  favors  the  Standard. 

III.  There  are  in  many  parts  of  the  country  important  discrim- 
inations with  respect  to  the  classification  of  petroleum  and  the  rules 
under  which  it  is  transported.  In  many  cases  there  are  unreasonable 
differences  between  the  rates  on  oil  in  carloads  and  less  than  car- 
loads. There  are  also  unreasonable  rules  with  respect  to  charges  on 
oil  in  different  kinds  of  containers ;  and  with  respect  to  shipments 
of  mixed  carloads  of  different  kinds  of  oil,  rules  which  have  been 
applied  against  independent  refiners,  but  sometimes  not  against  the 
Standard. 

An  important  instance  of  discrimination  in  classification  is  found 
with  respect  to  the  arbitrary  rates  fixed  by  the  railroads  in  com- 
puting freight  charges  on  the  shipments  of  Kansas  crude  oil  and 
the  products  derived  therefrom.  The  eastern  railroads  have  for 
years  fixed  the  arbitrary  weight  on  crude  oil  and  all  of  its  products 
alike  at  6.4  pounds  per  gallon  as  a  basis  of  freight  charges.  In  1902 
the  railroads  in  the  West  raised  the  arbitrary  weight  on  Kansas 
crude  oil  to  7.4  pounds,  while  continuing  to  carry  all  products  of 
the  refinery  at  6.4  pounds.  Fuel  oil,  which  is  the  residuum  of  the 
refining  process,  the  railroads  have  carried  on  the  basis  of  6.4 
pounds,  although  it  actually  weighs  7.6  pounds.  This  discrimina- 
tion has  tended  seriously  to  injure  the  Kansas  crude-oil  producer. 


RAILWAY  REGULATION  361 

IV.  Still  another  discrimination  is  practiced  in  the  treatment 
of  private  tank  cars.  Throughout  the  country  the  Union  Tank 
Line  Company,  a  Standard  concern,  obtains  three-fourths  cent  per 
car  per  mile  as  rental  on  its  cylinder  tank  cars,  whether  loaded  or 
empty.  Owing  to  the  relatively  slow  movement  of  tank  cars,  this 
allowance  does  not  appear  to  result  in  an  excessive  profit.  In  most 
sections  of  the  country  all  refiners  operating  tank  cars  receive  equal 
treatment.  On  the  Pacific  Coast,  however,  most  independent  refiners 
receive  only  six-tenths  cent  per  mile,  and  this  on  the  loaded  move- 
ment only. 

180.     Recent  Forms  of  Railway  Discrimination^ 

BY  WILUAM  Z.  RIPLEY 

With  the  passage  of  time,  and  especially  since  1896,  new  and 
even  more  elaborate  schemes  for  rebating  have  come  to  light.  One 
of  the  most  ingenious,  which  was  discovered  about  1904  to  be  very 
widespread,  was  the  use  of  terminal  or  spur  track  railway  com- 
panies. In  Hutchinson,  Kansas,  for  example,  were  salt  works  hay- 
ing a  capacity  of  some  6,000  barrels  a  day.  Two  railways  were 
available  for  shipments.  A  new  company  was  incorporated,  all  its 
stock  being  held  by  the  salt  works  owners,  which  constructed  sidings 
to  both  railroad  lines.  The  spur  track  was  less  than  a  mile  long 
and  cost  only  about  $8,000  to  build.  But  the  company  was  chartered 
as  the  Hutchinson  &  Arkansas  River  Railroad.  Its  officers  were  the 
owners  of  the  salt  mills.  It  owned  neither  engines  nor  cars.  Yet 
it  entered  into  a  traffic  agreement  with  the  Atchison  road  for  a 
division  of  the  through  rate  to  many  important  points,  its  share 
being  about  twenty-five  per  cent. 

Obviously,  rebates  assuming  the  above-described  form  are  open 
only  to  very  large  shippers,  to  whom  it  is  worth  while  to  incur  the 
considerable  expense.  The  International  Harvester  Company  at 
Chicago  had  for  years  performed  much  of  its  own  terminal  service ; 
and  until  1904  was  allowed  as  high  as  $3.50  per  car  for  switching 
charges  by  connecting  railroads.  It  then  incorporated  the  Illinois 
Northern  Railroad,  which  was  promptly  conceded  twenty  per  cent 
of  all  through  rates,  with  the  Missouri  river  rate  as  a  maximum. 
On  this  traffic  it  would  be  allowed  as  high  as  $12  per  car,  instead  of 
$3.50  as  before. 

'Adapted  from  Railroads,  Rates  and  Regulation,  195-209.  Copyright  by 
Longmans,  Green  &  Co.  (1912). 


362  CURRENT  ECONOMIC  PROBLEMS 

The  so-called  "midnight  tariff"  was  a  strictly  legal  way  of  con- 
ferring favors  upon  certain  shippers.  It  was  much  in  evidence  dur- 
ing the  grain  wars  between  lines  serving  the  Gulf  ports  about  1903. 
And  it  seems  to  have  been  a  device  used  at  times  all  over  the  country. 
A  traffic  manager  wishing  to  steal  all  the  business  of  a  large  shipper 
from  some  competing  road,  and  to  build  himself  up  at  the  expense 
of  his  rivals,  secretly  agrees  to  put  into  effect  a  low  rate  on  a  given 
date.  The  shipper  then  enters  into  contracts  calling  for  perhaps 
several  hundred  car-loads  of  grain  to  be  delivered  at  that  time. 
This  reduction  is  publicly  filed,  perhaps  thirty  days  in  advance,  with 
the  Interstate  Commerce  Commission  at  Washington.  But  who  is 
to  discover  it,  in  the  great  medley  of  new  tariffs  placed  on  file  every 
day?  Yet  this  is  not  all.  A  second  tariff,  restoring  the  full  rate,  is 
also  filed  to  take  effect  very  shortly — perhaps  only  a  day — after  the 
reduction  occurs.  All  these  are  public,  and  open  to  all  shippers  alike. 
But  only  the  one  who  was  forewarned  is  able  to  take  advantage  of 
them. 

An  entirely  different  plan  of  rebating — and  a  most  effective  one 
— has  to  do  with  apparently  unrelated  commercial  transactions. 
Many  shippers  are  large  sellers  of  supplies  to  the  railroad.  How 
easy  then  to  make  a  concession  in  rates  to  an  oil  refinery,  for  ex- 
ample, by  paying  a  little  extra  for  the  lubricating  oil  bought  from 
a  subsidiary  concern.  The  Federal  authorities  in  recent  years,  and 
especially  in  connection  with  the  prosecution  of  the  Standard  Oil 
Company  in  1908-1911,  have  discovered  the  most  extraordinary 
variations  in  the  prices  paid  by  railroads  for  supplies.  Independent 
concerns  were  often  not  allowed  to  compete  in  the  sale  of  lubri- 
cants at  all.  It  would  be  difficult  to  prove  any  connection  between 
so  widely  separate  sets  of  dealings;  and  yet  it  is  clear  that  rebates 
are  often  given  in  this  way.  Or  even  more  fruitful  as  an  ex- 
pedient, especially  in  these  later  days,  when  rebating  is  a  serious 
offence,  why  not  confer  a  favor  by  extra  liberality  in  allowances 
for  damages  to  goods  in  transit? 

Personal  discrimination  may  be  as  effective  upon  competition 
through  denial  of  facilities  to  some  shippers  as  through  conferring 
of  special  favors  upon  others.  Practices  of  this  sort  have  been 
tjuite  common  in  the  coal  business,  especially  in  the  matter  of  fur- 
nishing or  refusing  to  furnish  an  ample  supply  of  cars  or  suitable 
spur  tracks  to  mines.  In  1906  came  the  startling  revelations  upon 
the  Pennsylvania  Railroad  as  to  the  practice  of  discrimination  in 
furnishing  cars  to  coal  mines.  A  comprehensive  investigation  by 
the  company  itself  resulted  in  the  discharge  of  a  number  of  high 
officials.     It  appeared,  for  example,  that  the  assistant  to  President 


RAILWAY  REGULATION  363 

Cassatt  had  acquired  $307,000  in  stock  of  coal  companies  without 
cost;  that  a  trainmaster  for  $500  had  purchased  coal  mine  stock 
which  yielded  an  annual  income  of  $30,000;  and  that  one  road  fore- 
man was  given  three  hundred  shares  of  the  same  company  stock  for 
nothing.  In  all  these  cases  the  object  was  to  secure  not  only  an 
ample  supply  of  cars  for  the  favored  companies,  but  perhaps  even 
the  denial  of  suitable  service  to  troublesome  competitors. 

Yet  other  means  of  favoring  large  shippers  at  the  expense  of 
small  ones  are  almost  impossible  to  eradicate.  The  record  of  the 
vigorous  prosecutions  against  rebating,  under  the  Elkins  law,  af- 
fords conclusive  evidences  not  only  as  to  the  widespread  extent  of 
the  evil,  but  as  to  its  identification  with  many  of  the  large  industrial 
combinations.  There  was  collected  in  fines  for  rebating  between 
October,  1905,  and  March,  1907,  the  sum  of  $586,000.  Several 
men  were  sent  to  jail,  for  from  three  to  six  months.  Among  the 
trusts  implicated  were  the  beef  packers,  who  have  been  indefatigable 
in  concocting  rebating  devices,  the  tin  plate  combination,  and,  most 
notable  of  all,  the  American  Sugar  Refining  Company.  Nearly 
$300,000  in  fines  was  imposed  upon  this  concern  alone.  The  secret 
allowances  in  these  cases  were  most  ingeniously  arranged.  Some 
were  "refund  of  terminal  charges;"  some  were  "lighterage  de- 
murrage;" some  were  allowances  for  damages.  Many  were  paid 
by  drafts  instead  of  checks,  so  as  to  preclude  identification  of  in- 
dividuals ;  some  were  by  special  bank  account ;  but  the  sums  in- 
volved were  very  large. 

The  following  quotation  from  a  letter  from  an  agent  of  the 
sugar  trust  accompanying  a  claim  for  overcharge  of  $6,866  on 
shipments  of  syrup,  introduced  in  evidence  in  one  of  these  cases, 
aptly  describes  the  situation,  both  then,  now,  and  always.  "We 
hope  to  devise  some  means  to  enable  us  to  conduct  our  freight  mat- 
ters with  the  transportation  companies  satisfactorily  even  under  the 
new  conditions  imposed  by  the  Elkins  bill;  but  there  may  be  some 
cases  that  cannot  be  taken  care  of,  in  the  event  of  which  we  will, 
like  all  other  shippers,  have  to  take  our  medicine  and  look  pleasant." 
The  Interstate  Commerce  Commission  reported  as  to  the  conditions 
in  1908  that  "many  shippers  still  enjoy  illegal  advantages." 

Thus  the  rebate  as  an  evil  in  transportation,  even  since  amend- 
ment of  the  law  in  1906-19TO,  while  under  control,  is  still  far  from 
being  eradicated.  Favoritism  lurks  in  every  covert,  assuming  al- 
most every  hue  and  form.  Practices  which  outwardly  appear  to  be 
necessary  and  legitimate,  have  been  shown  to  conceal  special  favors 
of  a  substantial  sort. 


^64  CURRENT  ECONOMIC  PROBLEMS 

C.    THE  NATURE  AND  EXTENT  OF  REGULATION 
i8i.     Complaints  against  the  Railroad  System^ 

1.  That  local  rates  were  unreasonably  high,  compared  with 
through  rates. 

2.  That  both  local  and  through  rates  were  unreasonably  high 
at  noncompeting  points,  either  from  the  absence  of  competition  or 
in  consequence  of  pooling  agreements  that  restricted  its  operation. 

3.  That  rates  were  established  without  apparent  regard  to  the 
actual  cost  of  the  service  performed,  and  are  based  largely  on 
"what  the  traffic  will  bear." 

4.  That  unjustifiable  discriminations  were  constantly  made  be- 
tween individuals  in  the  rates  charged  for  like  service  under  similar 
circumstances. 

5.  That  improper  discriminations  were  made  between  articles 
of  freight  and  branches  of  business  of  a  like  character,  and  between 
different  quantities  of  the  same  class  of  freight. 

6.  That  unreasonable  discriminations  were  made  between  lo- 
calities similarly  situated. 

7.  That  the,  effect  of  the  prevailing  policy  of  railroad  manage- 
ment was,  by  an  elaborate  system  of  secret  special  rates,  rebates, 
drawbacks  and  concessions,  to  foster  monopoly,  to  enrich  favored 
shippers,  and  to  prevent  free  competition  in  many  lines  of  trade 
in  which  the  item  of  transportation  is  an  important  factor. 

8.  That  such  favoritism  and  secrecy  introduced  an  element  of 
uncertainty  into  legitimate  business  that  greatly  retarded  the  devel- 
opment of  our  industries  and  commerce. 

9.  That  the  secret  cutting  of  rates  and  the  sudden  fluctuations 
that  constantly  took  place  were  demoralizing  to  all  business  except 
that  of  a  purely  speculative  character,  and  frequently  occasioned 
great  injustice  and  heavy  losses. 

10.  That,  in  the  absence  of  national  and  uniform  legislation, 
the  railroads  were  able,  by  various  devices,  to  avoid  their  respons- 
ibility as  carriers,  especially  on  shipments  over  more  than  one  road, 
or  from  one  State  to  another,  and  that  shippers  found  great  diffi- 
culty in  recovering  damages  for  loss  of  property  or  for  injury 
thereto. 

11.  That  railroads  refused  to  be  bound  by  their  own  con- 
tracts, and  arbitrarily  collected  large  sums  in  the  shape  of  over- 
charges, in  addition  to  the  rates  agreed  upon  at  the  time  of  ship- 
ment. 

"Adapted  from  the  Report  of  the  Senate  Select  (CuUom)  Committee  on 
Interstate  Commerce,  I,  180-181  (1886). 


RAILWAY  REGULATION  365 

12.  That  railroads  often  refused  to  recognize  or  be  responsible 
for  acts  of  dishonest  agents  acting  under  their  authority, 

13.  That  the  common  law  failed  to  afford  a  remedy  for  such 
grievances  and  that  in  cases  of  dispute  the  shipper  was  compelled 
to  submit  to  the  decision  of  the  railroad  manager  or  pool  commis- 
sioner, or  nm  the  risk  of  incurring  further  losses  by  greater  dis- 
criminations. 

14.  That  the  differences  in  the  classifications  in  use  in  various 
parts  of  the  country,  and  sometimes  for  shipments  over  the  same 
roads  in  different  directions,  were  a  fruitful  source  of  misunder- 
standings, and  were  often  made  a  means  of  extortion. 

15.  That  a  privileged  class  was  created  by  the  granting  of 
passes,  and  that  the  cost  of  the  passenger  service  was  largely  in- 
creased by  the  extent  of  this  abuse. 

16.  That  the  capitalization  and  bonded  indebtedness  of  the 
roads  largely  exceeded  the  actual  cost  of  their  construction  or  their 
present  value,  and  that  unreasonable  rates  were  charged  in  the 
effort  to  pay  dividends  on  watered  stock  and  interest  on  bonds  im- 
properly issued. 

17.  That  railroad  corporations  had  improperly  engaged  in  lines 
of  business  entirely  distinct  from  that  of  transportation,  and  that 
undue  advantages  had  been  afforded  to  business  enterprises  in 
which  railroad  officials  were  interested. 

18.  That  the  management  of  the  railroad  business  was  ex- 
travagant and  wasteful,  and  that  a  heedless  tax  was  imposed  upon 
the  shipping  and  traveling  public  by  the  unnecessary  expenditure  of 
large  sums  in  the  maintenance  of  a  costly  force  of  agents  engaged 
in  a  reckless  strife  for  competitive  business. 

182.    The  Provisions  of  the  Interstate  Commerce  Act^ 

BY  LOGAN  G.  MC  PHERSON 

The  Interstate  Commerce  Act,  taking  effect  April  5,  1887, 
practically  applied  the  principles  of  the  common  law  which  inhere 
in  the  unlimited  jurisdiction  of  the  State  courts  to  the  regulation  of 
interstate  traffic  by  the  Federal  courts.    It  provided  : 

First — That  charges  for  transportation  must  be  reasonable  and 
just ;  prohibiting  any  unjust  discrimination  by  special  rates,  rebates, 
or  other  devices,  and  any  undue  or  unreasonable  preferences ; 

•Adapted  from  The  Working  of  the  Railroads,  248-250-  Copyright  by 
Henry  Holt  &  Co.  (1907). 


366  CURRENT  ECONOMIC  PROBLEMS 

Second — That  there  should  not  be  a  greater  charge  for  a  short 
haul  than  for  a  long  haul  over  the  same  line  m  the  same  direction 
under  substantially  similar  circumstances  and  conditions; 

Third — Prohibited  the  pooling  of  freights  and  the  division  of 
earnings ; 

Fourth — Prohibited  any  device  to  prevent  the  continuous  car- 
riage of  freights ; 

Fifth — Provided  for  the  publicity  and  filing  with  the  Commis- 
sioner of  all  tariffs ; 

Sixth — The  Interstate  Commerce  Commission  created  by  the 
Act  is  given  power  to  investigate  complaints  against  carriers  and 
to  make  reports  of  its  investigation  in  writing; 

Seventh — The  Interstate  Commerce  Commission  is  authorized, 
in  case  it  finds  that  the  carrier  has  violated  the  law,  to  order  it  to 
desist  and  make  reparation  for  injury  done.  In  case  these  orders 
are  not  obeyed  the  Commission  is  empowered  to  proceed  in  a  sum- 
mary way  to  have  the  Circuit  Court  of  the  United  States  enforce 
them, 

183.     The  Provisions  of  the  Elkins  Act" 

The  Elkins  law,  approved  February  19,  1903,  is  an  amendment 
to  the  Act  to  Regulate  Commerce,  and  the  only  important  amend- 
ment since  1889.  The  former  act  is  directed  against  wrongdoing 
both  in  the  fixing  of  tariff  rates  and  in  the  failure  to  apply  them 
when  they  have  been  fixed.  Broadly  speaking  it  is  the  latter  class 
of  offenses  only  which  are  affected  by  the  recent  legislation.  Its 
provisions  are  designed  more  effectually  to  reach  infractions  of  law 
such  as  the  payment  of  rebates  and  kindred  practices. 

In  the  first  place  it  makes  the  railroad  corporation  itself  liable 
to  prosecution  in  all  cases  where  its  officers  or  agents  are  liable 
under  the  former  law.  Such  officers  and  agents  continue  to  be 
liable  as  heretofore,  but  this  liability  is  now  extended  to  the  corpora- 
tion which  they  represent. 

The  amended  law  has  abolished  the  penalty  of  imprisonment,  and 
the  only  punishment  now  provided  is  the  imposition  of  fines.     As 
the  corporation  cannot  be  imprisoned  or  otherwise  punished  than 
by  money  penalties,  it  was  deemed  expedient  that  no  greater  pun-- 
ishment  be  visited  upon  the  offending  officer  or  agent. 

Under  the  former  law  it  was  not  sufficient  to  show  that  a  secret 
and  preferential  rate  had  been  allowed  in  a  particular  case;  there 
had  to  be  further  proof  of  the  payment  of  higher  charges  by  some 

^'Adapted  from  the  Seventeenth  Annual  Report  of  the  Interstate  Com- 
merce Commission,  8-10  (1903). 


RAILWAY  REGULATION  367 

other  person  on  like  and  contemporaneous  shipments.  The  result 
was  to  render  successful  prosecutions  almost  impossible.  This  de- 
fect seems  to  have  been  remedied.  The  new  law  in  most  explicit 
terms  makes  the  published  tariff  the  standard  of  lawfulness,  and 
any  departure  therefrom  is  declared  to  be  a  misdemeanor.  It  is 
sufficient  now  to  show  that  a  lower  rate  than  that  named  in  the 
tariff  has  been  accorded. 

A  further  provision  of  the  law  makes  it  lawful  to  include  as 
parties,  in  addition  to  the  carrier  complained  of,  all  persons  inter- 
ested in  or  affected  by  the  matters  involved  in  the  proceeding.  Un- 
der the  former  law  carriers  only  could  be  made  parties  defendant; 
under  the  amended  law  shippers  may  also  be  included. 

Another  provision  confers  jurisdiction  upon  the  circuit  courts 
of  the  United  States  to  restrain  departure  from  published  rates,  or 
"any  discriminations  forbidden  by  law,"  by  writ  of  injunction,  or 
by  other  appropriate  process. 

184.     The  Provisions  of  the  Hepburn  Bill" 

BY  I.OGAN  G.  MC  PHERSON 

The  Hepburn  Bill  took  effect  on  August  28,  1906.  The  bill  pro- 
vides : 

(a)  That  as  "common  carriers"  under  the  Interstate  Com- 
merce Law  shall  be  included  companies  transporting  oil  by  pipe 
lines,  express  companies,  sleeping  car  companies,  all  switches, 
tracks,  terminal  facilities,  and  that  "transportation"  under  the  law 
shall  include  all  cars  regardless  of  their  ownership,  and  all  service 
in  transit. 

(b)  Prohibits  the  issue  of  passes,  with  certain  specified  ex- 
ceptions that  cover  mainly  employes,  fixing  a  penalty  in  case  of 
violation  that  shall  apply  to  both  the  giver  and  the  recipient. 

(c)  Makes  it  unlawful  after  May  ist,  1908,  for  any  railroad 
company  to  transport  for  sale  any  commodities  in  which  it  may 
have  a  proprietary  interest,  except  lumber  and  its  products. 

(d)  Provides  that  a  common  carrier  shall  provide,  when 
practicable,  and  upon  reasonable  terms,  a  switch  connection  for  any 
applicant  who  shall  furnish  sufficient  business  to  justify  its  oper- 
ation. 

(e)  Makes  more  explicit  the  specification  as  to  the  filing  of 
tariffs,  especially  providing  for  the  posting  and  filing  of  through 
tariffs ;  fixing  penalty  for  violation. 

*^Adapted  from  The  Working  of  the  Railroads,  255-259.  Copyright  by 
Henry  Holt  &  Co.  (1907). 


368  CURRENT  ECONOMIC  PROBLEMS 

(f)  Provides  that  "every  person  or  corporation,  whether  car 
rier  or  shipper,  who  shall  knowingly  offer,  grant,  give  or  solicit, 
or  accept,  or  receive  rebates,  concession,  or  discrimination,  shall  be 
deemed  guilty  of  a  misdemeanor,  and  on  conviction  thereof  shall 
be  punished  by  a  fine  of  not  less  than  one  thousand  or  more  than 
twenty  thousand  dollars."  Moreover,  any  person,  whether  officer 
or  director,  agent  or  employe,  convicted  of  such  misdemeanor, 
"shall  be  liable  to  imprisonment  in  the  penitentiary  for  a  term  not 
exceeding  two  years,  or  both  fine  and  imprisonment  in  the  discre- 
tion of  the  court."  In  addition,  the  acceptor  of  any  rebate  shall 
forfeit  to  the  United  States  three  times  the  amount  of  the  rebate. 

(g)  Provides  for  the  publication  of  the  reports  and  the  de- 
cisions of  the  Commission  and  their  acceptance  as  evidence. 

(h)  Empowers  the  Commission,  if  upon  complaint  it  finds 
that  a  rate,  or  any  regulation  or  practice  affecting  a  rate,  is  "Un- 
just or  unreasonable,  or  unjustly  discriminatory,  or  unduly  prefer- 
ential or  prejudicial,"  to  determine  and  prescribe  a  maximum  rate 
to  be  charged  thereafter  and  modify  the  regulation  or  practice  per- 
taining thereto. 

(i)  Empowers  the  Commission  to  award  damages  against  a 
carrier  in  favor  of  a  complainant. 

(j)  Provides  for  forfeit  to  the  United  States,  in  case  of  neglect 
to  obey  an  order  of  the  Commission,  in  the  sum  of  five  thousand 
dollars  for  each  offense,  each  violation  and  each  day  of  its  continu- 
ance to  be  deemed  a  separate  offense. 

(k)  Empowers  the  Commission  to  apply  to  a  circuit  court 
for  the  enforcement  of  its  order,  other  than  for  the  payment  of 
money ;  for  the  appeal  by  either  party  to  the  Supreme  Court  of  the 
United  States ;  and  that  no  order  of  the  Commission  shall  be  sus- 
pended or  restrained,  except  on  hearing,  after  not  less  than  five 
days'  notice  to  the  Commission. 

(1)  Provides  for  the  rehearing  by  the  Commission,  upon  ap- 
plication, at  its  discretion. 

(m)  Authorizes  the  Commission  to  require  annual  reports 
from  all  common  carriers,  that  shall  contain  specified  information ; 
to  prescribe  the  form  of  any  and  all  accounts,  records  and  memor- 
anda to  be  kept  by  carriers,  making  it  unlawful  for  the  carriers  to 
keep  any  other  accounts,  records,  or  memoranda  than  those  pre- 
scribed and  approved  by  the  Commission ;  provides  that  all  accounts 
of  the  carriers  shall  be  open  to  the  inspection  of  the  special  agents, 
or  examiners  employed  by  the  Commission. 

(n)  Provides  that  a  common  carrier  issuing  a  through  bill  of 
lading  shall  be  responsible  for  loss,  damage  or  injury  to  the  prop- 


RAILWAY  REGULATION  369 

erty  covered  thereby  upon  the  lines  of  any  company  over  which 
it  may  pass,  leaving  it  to  the  line  issuing  the  way-bill  to  gain  re- 
covery from  another  line  upon  which  the  loss,  damage,  or  injury 
may  have  occurred. 

(o)  Enlarges  the  Interstate  Commerce  Commission  from  five 
to  seven  members,  with  terms  of  seven  years,  increasing  the  salary 
from  seven  thousand  five  hundred  to  ten  thousand  dollars  per 
annum. 

185.     The  Mann-Elkins  Act" 

The  Interstate  Commerce  Bill,  as  it  was  reported  out  of  confer- 
ence on  June  14,  contains  the  following  provisions : 

1.  It  creates  a  court  of  commerce  for  the  enforcement  of  orders 
of  the  Interstate  Commerce  Commission.*^ 

2.  It  provides  that  no  railroad  shall  charge  any  greater  com- 
pensation for  a  shorter  than  for  a  longer  haul,  except  in  cases  where 
such  action  is  authorized  after  investigation  by  the  Interstate  Com- 
merce Commission. 

3.  It  provides  that  railroads  shall  be  required  to  state  in  writ- 
ing the  rate  or  charge  applicable  to  a  described  shipment. 

4.  The  Interstate  Commerce  Commission  upon  complaint  is 
authorized  to  determine  and  prescribe  the  just  and  reasonable  indi- 
vidual or  joint  rate  as  the  maximum  to  be  charged  and  to  specify 
the  individual  or  joint  classification,  regulation,  or  practice  which 
it  deems  to  be  fair,  just,  and  reasonable. 

5.  The  commission  may  suspend  the  operation  of  any  new 
rate,  classification,  regulation,  or  practice  for  a  period  not  exceed- 
ing 120  days,  and  extend  the  time  of  suspension  for  a  further  period 
of  six  months,  after  which  time  the  new  rate,  classification,  regula- 
tion or  practice  will  become  effective  unless  the  commission  orders 
to  the  contrary. 

6.  The  commission  may  establish  through  routes  and  joint 
classifications  and  joint  rates  as  to  the  maximum  to  be  charged 
whenever  the  carriers  themselves  refuse  to  do  so. 

7.  The  right  is  given  to  the  shipper  to  designate  one  of  several 
through  routes  by  which  his  property  shall  be  transported  to  its 
destination. 

8.  Every  failure  to  obey  an  order  of  the  commission  shall  be 
punished  by  a  fine  of  $5,000. 

^^Adapted  from  articles  in  the  Railway  and  Engineering  Review,  L,  546- 
547,  587  (1910). 

^*This  court  was  practically  abolished  in  1912  by  the  failure  of  Congres5 
to  make  financial  provision  for  its  support. 


370  "       CURRENT  ECONOMIC  PROBLEMS 

9.  Copies  of  classification,  tariffs,  etc.,  furnished  to  the  com- 
mission shall  be  public  records. 

ID.  Authority  is  granted  for  the  appointment  of  a  commission 
to  report  upon  the  advisability  of  the  physical  valuation  of  roads 
and  the  control  of  railroad  capitalization. 

D.     ASPECTS  OF  RATE-MAKING 
186.     Freight  Classification^* 

BY   WILUAM  Z.  RIPIvEY 

Imagine  the  Encyclopedia  Britannica,  a  Chicago  mail-order 
catalogue,  and  a  United  States  protective  tariff  law  blended  in 
a  single  volume,  and  you  have  a  freight  classification  as  it  exists 
in  the  United  States  at  the  present  time.  Such  a  classification  is, 
fir>st  of  all,  a  list  of  every  possible  commodity  which  may  move  by 
rail,  from  Academy  or  Artist's  Board  and  Accoutrements  to  Xylo- 
phones and  Zylonite.  In  this  list  one  finds  Algarovilla,  Bagasse, 
"Pie  Crust,  Prepared;"  Artificial  Hams,  Cattle  Tails  and  Wombat 
Skins ;  Wings,  Crutches,  Cradles,  Baby  Jumpers  and  all ;  together 
with  Shoo  Flies  and  Grave  Vaults.  Everything  above,  on,  or  under 
the  earth  will  be  found  listed  in  such  a  volume.  To  grade  justly 
all  these  commodities  is  obviously  a  task  of  the  utmost  nicety.  A 
few  of  the  delicate  questions  which  have  puzzled  the  Interstate 
Commerce  Commission  may  give  some  idea  of  the  complexity  of 
the  problem.  Shall  cow  peas  pay  freight  as  "vegetables,  N.  O.  S., 
dried  or  evaporated,"  or  as  "fertilizer" — being  an  active  agent  in 
soil  regeneration?  Are  "iron-handled  bristle  shoe-blacking  daub- 
ers" machinery  or  toilet  appliances?  Are  patent  medicines  dis- 
tinguishable, for  purposes  of  transportation,  from  other  alcoholic 
beverages  used  as  tonics?  What  is  the  difference,  as  regards  rail 
carriage,  between  a  percolator  and  an  every-day  coffee  pot?  Are 
Grandpa's  Wonder  Soap  and  Pearline  to  be  put  in  different  classes, 
according  to  their  uses  or  their  market  price  ?  When  is  a  boiler  not 
a  boiler?  If  it  be  used  for  heating  purposes  rather  than  steam  gen- 
eration, why  is  it  not  a  stove?  W^hat  is  the  difference  between 
raisins  and  other  dried  fruits,  unless  perchance  the  carrier  has  not 
yet  established  one  industry  while  another  is  already  firmly  rooted 
and  safe  against  competition? 

The  classification  of  all  these  articles  is  a  factor  of  primary  im- 
portance in  the  making  of  freight  rates  both  from  a  public  and 

"Adapted  from  Railroads,  Rates  and  Regulation,  297-304.  Copyright  by 
Longmans,  Green  &  Co.  (1912). 


RAILWAY  REGULATION  371 

private  point  of  view.  Its  public  importance  has  not  been  fully 
appreciated  until  recently  as  affecting  the  general  level  of  railway 
charges.  So  little  was  its  significance  understood,  that  supervision 
and  control  of  classification  were  not  apparently  contemplated  by 
the  original  Act  to  Regulate  Commerce  of  1887.  The  anomaly  ex- 
isted for  many  years  of  a  grant  of  power  intended  to  regulate 
freight  rates,  which,  at  the  same  time,  omitted  provision  for  control 
over  a  fundamentally  important  element  in  their  make-up.  Control 
over  it  has  now  been  assured  beyond  possibility  of  dispute. 

The  freight  rate  upon  a  particular  commodity  between  any 
given  points  is  compoimded  of  two  separate  and  distinct  factors: 
one  having  to  do  with  the  nature  of  the  haul,  the  other  with  the 
nature  of  the  goods  themselves.  Two  distinct  publications  must  be 
consulted  in  order  to  determine  the  actual  charge.  Although  both 
of  them  usually  bear  the  name  of  the  railway  and  are  issued  over 
its  signature,  they  emanate,  nevertheless,  from  entirely  different 
sources.  The  first  of  these  is  known  as  the  Freight  Tariff.  It 
specifies  rates  in  cents  per  hundred  pounds  for  a  number  of  differ- 
ent classes  of  freight,  numerically  designated,  between  all  the 
places  upon  each  line  or  its  connections.  But  it  does  not 
mention  specific  commodities.  The  second  publication  which 
must  be  consulted  supplies  this  defect.  This  is  known  as  the 
Classification.  Its  function  is  to  group  all  articles  more  or  less 
alike  in  character,  so  far  as  they  affect  transportation  cost,  or  are 
affected  in  value  by  carriage  from  place  to  place.  These  groups 
correspond  to  the  several  numerical  classes  already  named  in  the 
freight  tariff.  Thus  dry  goods  or  boots  and  shoes  are  designated 
as  first  class.  It  thus  appears,  as  has  been  said,  that  a  freight  rate 
is  made  up  of  two  distinct  elements  equal  in  importance.  The  first 
is  the  charge  corresponding  to  the  distance;  the  other  is  the  charge 
as  determined  by  the  character  of  the  goods.  Consequently,  a  vari- 
ation in  either  one  of  the  two  would  result  in  changing  the  final 
rate  as  compounded. 

Freight  tariffs  and  classifications  are  as  distinct  and  independent 
in  source  as  they  are  in  nature.  Tariffs  are  issued  by  each  railway, 
by  and  for  itself  alone  and  upon  its  sole  authority.  Classifications, 
on  the  other  hand,  do  not  originate  with  particular  railways  at  all ; 
but  are  issued  for  them  by  cooperative  bodies,  known  as  classifi- 
cation committees.  These  committees  are  composed  of  represen- 
tatives from  all  the  carriers  operating  within  certain  designated 
territories.  In  other  words,  the  United  States  is  apportioned  among 
a  number  of  committees,  to  each  of  which  is  delegated,  by  the  car- 
riers concerned,  the  power  over  classification.     New  editions  of 


372  CURRENT  ECONOMIC  PROBLEMS 

these  classifications  are  published  from  time  to  time  as  called  for 
by  additions  or  amendments,  the  latest,  of  course,  superseding  all 
earlier  ones.  Thirty-seven  such  issues  have  already  appeared  in 
series  in  trunk  lines  and  southern  territory,  while  fifty  have  been 
put  forth  in  western  territory,  since  the  practice  was  standardized 
in  1888. 

187.     Competitive  Factors  in  Rate-Making^" 

BY  EMORY  R.  JOHNSON  AND  GROVIiR  C.  HUEBNER 

Railroad  rates  are,  to  a  large  extent,  the  resultant  of  competitive 
forces.  In  part  the  competition  is  of  carriers  with  each  other  for 
traffic  free  to  move  by  more  than  one  line;  and,  in  a  still  larger 
way,  the  competition  is  between  industries  and  among  rival  pro- 
ducing or  trading  centers  and  sections.  If  a  railroad  company  is 
to  prosper,  the  industries  along  its  lines,  the  section  of  country  it 
serves,  and  the  markets  it  reaches  must  flourish. 

In  determining  the  rates  Vhich  the  traffic  will  bear,  the  General 
Freight  Agent  is  influenced  by  many  factors.  The  strongest  force 
is  that  of  competition  among  markets,  or  "of  interregional,  indus- 
trial competition."  The  asphalt  of  California,  for  example,  com- 
petes against  that  of  Texas,  the  West  Indies  and  South  America, 
in  American  cities,  and  railway  rates  on  the  California  product 
must  be  fixed  so  as  to  give  a  wide  sale.  Likewise  the  rates  on  cotton 
goods  from  southern  mills  are  made  so  as  to  allow  them  to  find  a 
market  side  by  side  with  the  output  of  New  England  mills.  In- 
numerable instances  of  interregional  competition  in  manufacturing 
might  be  cited.  The  finished  product  must  be  carried  to  market 
in  rivalry  with  similar  goods  from  other  sections,  while  raw  pro- 
ducts and  coal  must  be  hauled  to  the  factories  at  rates  which  will 
allow  all  industries  to  thrive.  Were  there  no  indirect  bidding  of 
one  railway  for  the  traffic  of  another,  this  all-pervading  competition 
between  producing  regions  would  still  exert  a  constant  regulative 
pressure  upon  the  level  of  rates. 

Among  the  markets  themselves  the  same  forces  of  commercial 
competition  are  effective.  The  Gulf  ports  compete  with  the  North 
Atlantic  ports  for  the  grain  exports  of  the  West,  and  the  North 
Atlantic  ports  strive  with  each  other  for  this  trade.  The  Gulf  ports 
struggle  with  those  of  the  South  Atlantic  for  the  cotton  of  the 
interior ;  New  Orleans  is  the  rival  of  Galveston. 

^'Adapted  from  Railroad  Traffic  and  Rates,  I,  351-359-  Copyright  by  D. 
Appleton  &  Co.  (191 0. 


RAILWAY  REGULATION  373 

It  is  chiefly  because  of  the  force  of  commercial  competition  that 
freight  rates  are  to  a  large  extent  interdependent.  To  change  an 
unimportant  rate  may  require  the  modification  of  but  a  few  others, 
but  to  raise  or  lower  the  rate  on  wheat  from  Chicago  to  New  York 
may  require  the  readjustment  of  many  other  charges.  The  rate 
structure,  like  a  spider's  web,  is  delicately  interwoven. 

Rival  markets  and  competing  producing  sections,  no  matter 
where  located,  will  be  kept  on  a  common  level,  if  it  is  possible  for 
the  carriers  to  so  place  them.  At  the  present  time  the  railways  as 
well  as  the  public  realize  that  artificial  limits  must  often  be  placed 
upon  interregional  competition. 

The  efforts  of  rival  railways  to  secure  traffic  free  to  move  by 
more  than  one  line  is  a  second  force  influencing  the  rate  maker.  Un- 
like the  commercial  competition  just  mentioned,  it  has  become  less 
instead  of  more  powerful ;  because,  as  time  goes  on,  it  is  more 
largely  regulated  by  the  consolidation  of  competing  lines,  or  by 
traffic  associations,  community-of-interest  arrangements,  and  in- 
formal mutual  understandings.  These  are  the  means  whereby  rival 
railways  have  sought  to  substitute  cooperation  for  unrestrained 
competition.  This  fact  is  well  illustrated  by  the  perennial  strife  of 
the  trunk  lines  over  the  relative  rates  to  be  accorded  North  Atlantic 
seaports  on  a  traffic  to  and  from  the  central  West. 

The  fact  that  the  competition  among  railroads  is  in  service  rather 
than  on  the  basis  of  secret  rates  enables  the  railways  to  regulate 
their  struggles  so  as  to  prevent  most,  if  not  all,  rate  wars ;  but  reg- 
ulated competition  that  stops  short  of  open  war  may  not  only  be 
perpetual,  but  may  also  be  keen,  and  may  be  effective  in  determin- 
ing both  the  charges  on  particular  commodities  and  the  general 
level  of  rates.  From  the  public  point  of  view,  this  interrailway 
competition  may  not  be  an  adequate  regulator  of  rates;  indeed,  it 
may,  like  interregional  industrial  competition,  lead  to  arbitrary  dis- 
criminations that  require  correction  by  public  authority;  but  this 
does  not  prove  the  absence  or  impotency  of  competition  among  rail- 
roads to  secure  traffic  free  to  move  by  more  than  one  route. 

The  influence  of  water  competition  upon  the  policy  and  practice 
of  railway  rate  making,  though  less  general  and  less  controlling 
now  than  formerly,  is  still  a  factor  of  much  effect  in  several  parts 
of  the  country ;  and  the  practical  certainty  of  a  general  improvement 
of  the  inland  waterways  of  the  United  States  indicates  that  water 
competition  will  be  more  potent  in  the  future  than  it  is  at  the  pres- 
ent time. 


374  CURRENT  ECONOMIC  PROBLEMS 

The  rail  charges  into  and  out  of  the  Southern  States  and  the 
system  of  rates  that  has  developed  in  that  section,  are  largely  influ- 
enced by  the  competitive  rates  and  service  of  the  coastwise  vessels. 
Likewise  the  rates  on  the  transcontinental  traffic  moving  west  and 
east  between  the  Atlantic  and  Pacific  sections  of  the  United  States 
are  absolutely  controlled  by  the  competition  of  the  water  routes 
via  Panama  and  the  Isthmus  of  Tehuantepec.  Moreover,  it  should 
be  specially  noted  that  water  competition  not  only  controls  certain 
specific  railway  charges,  but  also  exerts  much  influence  upon  the 
general  systems  of  rate  making  prevailing  in  different  sections  of 
the  country. 

Railway  rates  in  the  future  will  probably  be  increasingly  sub- 
ject to  the  regulation  of  waterway  competitiorL 

188.    The  Futility  of  Costs  as  a  Basis  for  Rates^" 

BY  SYDNEY  CHARLES  WILUAMS 

The  theory  of  price-determination  according  to  cost  of  produc- 
tion is  usually  interpreted  to  mean  that  the  price  of  each  unit  is 
determined  ultimately  by  the  cost  of  production  of  that  unit.  Where 
the  unit  is  large  and  simple,  e.  g.,  in  the  case  of  a  boat  constructed 
entirely  by  hand  by  one  man,  the  only  items  of  expense  will  be  the 
material,  the  man's  labour,  and  some  trifling  sum  to  cover  the  cost 
and  wear  and  tear  of  his  tools;  and  the  price  he  will  ask  will  be 
determined  accordingly.  Modern  industrial  conditions,  however, 
are  much  more  complicated.  A  factory  or  workshop  will  turn  out 
very  many  units  of  many  different  kinds;  involving  raw  material 
of  varying  values,  processes  of  all  kinds,  simple  and  elaborate, 
machinery  and  labour  of  many  sorts,  and  each  unit  of  each  kind 
must  bear  some  proportion  of  those  general  charges  which  cannot 
be  attributed  to  any  one  class  of  product,  but  must  be  borne  by  the 
whole. 

Now  to  what  extent  is  it  the  case  that  the  price  charged  for  each 
unit  of  railway  transport  is  determined  by  the  cost  of  producing 
that  unit?  At  first  sight  it  may  seem  a  very  simple  and  satisfactory 
method  of  arriving  at  railway  charges.  The  commodity  produced 
is  one — and  its  cost  per  unit  can  be  arrived  at,  and  the  price  to  be 
charged  fixed  accordingly.  But  this  seeming  simplicity  is  very  far 
from  being  present  in  reality.  For  when  we  begin  to  think  of  con- 
crete instances  of  railway  transport  we  see  that  they  include  com- 
modities very  diverse  indeed.     There  are  in  the  first  place  very 

"Adapted  from  The  Economics  of  Railway  Transport,  185H198   (1909). 


RAILWAY  REGULATION  375 

many  kinds  of  haulage,  pure  and  simple — for  long  distances,  me- 
dium distances,  and  short  distances,  with  a  cost  per  mile  varying 
according  to  the  distance;  there  is  haulage  of  all  kinds  of  goods, 
from  coal  and  limestone  to  fruit,  flowers,  dynamite,  and  cigars,  and 
of  all  manner  of  passengers,  from  a  Royal  party  in  a  special  train, 
or  first-class  express  traffic  to  the  Scotch  moors,  to  workmen's  jour- 
neys at  12  miles  a  penny  or  half-day  seaside  trips  at  similar  low 
charges ;  there  are  also  many  subsidiary  services  sometimes  given, 
sometimes  expressly  withheld — cartage,  delivery,  liability  for  dam- 
age or  loss,  refrigeration,  use  of  company's  wagons,  express  speed 
or  slow  travel,  and  so  forth.  In  short,  we  see  that  the  use  of  the 
purely  abstract  word  "transport"  gives  a  quite  misleading  air  of 
simplicity  to  what  is  really  a  congeries  of  operations  of  the  most 
diverse  kind.  Railways  in  fact  produce  a  far  greater  variety  of 
commodities  than  most  industrial  undertakings. 

But  it  may  be  urged,  this  does  not  demonstrate  the  impossibility 
of  basing  your  railway  charges  on  respective  costs  of  production. 
This  may  be  done  in  one  or  other  of  two  ways.  The  first  and  most 
obvious  method  is  to  classify  your  different  services  and  apportion 
to  each  the  peculiar  expenses'  connected  with  it.  Then  take  the 
whole  of  the  remaining  expenditure  of  a  general  kind  and  appor- 
tion that  among  the  different  services  according  to  their  respective 
prime  costs.  You  will  now  know  the  expenditure  involved  by  each 
service;  and  as  you  know  the  extent  of  this  traffic  you  will  be  able 
to  fix  a  fair  and  reasonable  charge  which  will  just  give  you  your 
expenditure  with  a  reasonable  margin  of  profit. 

If  the  matter  is  so  simple  it  should  be  child's  work  to  apply  it 
to  the  first  great  division  of  railway  work,  that  between  passenger 
and  goods  traffic.  The  simplest  and  clearest  subdivision  of  railway 
working  expenditure  is  as  follows :  General  Charges,  Ways  and 
Works,  Rolling-Stock,  Traffic  Department  Expenditure. 

Now  of  all  these  a  good  deal  is  not  merely  independent  of  any 
particular  kind  of  traffic  but  is  independent  of  traffic  altogether. 
Among  such  heads  of  expenditure  are  directors'  fees,  the  salaries 
of  the  managing  and  legal  staff,  the  rates  and  taxes  paid,  the 
greater  part  of  the  cost  of  maintenance  of  way  and  works,  and 
some  part  of  the  traffic  working  expenses.  These  items  clearly 
cannot  be  directly  connected  with  the  respective  amounts  of  goods 
or  passenger  traffic.  The  cost  of  passenger  and  goods  locomotives 
and  rolling-stock  can,  however,  be  so  allocated ;  so  also  the  cost  of 
their  respective  train-staffs ;  and  some  part  of  the  expenditure  of 
buildings.  Indeed,  the  very  variety  of  methods  adopted  to  secure 
this  allocation  themselves  testify  to  the  difficulty  of  the  operation; 


376  CURRENT  ECONOMIC  PROBLEMS 

train-mileage  has  been  tried  and  abandoned,  working  engine  hours 
are  believed  in  by  some,  but  the  only  unanimity  among  experts  is 
as  to  the  caution  with  which  the  figures  arrived  at  must  be  viewed 
and  utilized. 

The  varying  speeds,  the  different  kinds  of  accommodation,  the 
great  variety  in  the  number  and  complexity  of  the  services  ren- 
dered, the  different  sizes  of  consignments,  the  different  distances 
for  which,  the  different  directions  in  which,  and  the  different  times 
at  which  they  travel — all  these  mean  some  difference  in  cost;  but 
since  this  cost  is  made  up  of  so  many  countless  items,  who  can 
undertake  to  reduce  it  to  a  definite  schedule  of  fair  prices,  how- 
ever long  and  complicated?  And  to  achieve  a  result  of  even  use- 
ful accuracy  when  these  difficulties  are  borne  in  mind,  and  at  the 
same  time  it  is  remembered  that  the  schedule  must  be  simple,  uni- 
form, impartial,  semi-permanent,  and,  moreover,  must  be  known  be- 
fore, not  after  the  consignment  has  been  handled — is,  it  will  be 
recognized,  indeed  a  hopeless  task. 

But  it  may  be  claimed  that  there  is  an  alternative  method  with 
which  no  such  accuracy  is  expected  or  desired.  All  that  need  be 
done  is  to  take  the  number  of  units  of  work  done,  the  passenger- 
miles  and  ton-miles,  and  dividing  these  by  the  aggregate  expenses, 
so  obtain  an  average  figure  which  will  give  a  working  basis  for 
all  rates.  But  even  for  this  less  ambitious  project  there  are  insuper- 
able difficulties.  The  average  ton-mile  will  link  together  such 
dissimilar  units  as  one  ton  of  coal  out  of  a  train  load  of  800  tons 
carried,  say,  200  miles  without  a  stop  and  with  no  auxiliary  ser- 
vices, and  a  ton  of  cream  cheese  carried  in  small  consignments  over 
a  few  miles  with  many  subsidiary  services,  collection,  delivery,  pack- 
ing, weighing,  and  so  forth.  The  respective  rates  charged  will  be 
as  dissimilar  as  the  services  rendered.  The  coal  pays  a  very  low 
rate,  but  the  size,  regularity,  and  easy  handling  of  the  traffic  make 
it  most  acceptable;  the  cheese  traffic  pays  a  high  rate,  but  not  too 
high  in  view  of  the  care  and  work  it  involves.  Its  very  small  and 
variable  dimensions,  and  the  high  value  of  the  cheese,  make  the 
cost  of  the  transit  an  appreciable  item,  besides  say  the  profits  of 
the  retail  trader,  and  an  addition  to  the  price  which  the  well-to-do 
consumer  willingly  if  unconsciously  pays.  Apply  such  an  average 
figure  in  defiance  of  all  these  differing  conditions,  and  the  result 
will  only  be  to  kill  the  low  grade  traffic  and  to  let  off  too  lightly  the 
high  grade  traffic,  thereby  seriously  impairing  the  prosperity  of  the 
railway  and  ultimately  injuring  the  trading  public  which  needs  its 
services. 


RAILWAY  REGULATION  377 

189.     Charging  What  the  Traffic  Will  Bear" 

BY  W.  M.  ACKWORTH 

The  phrase  "charging  what  the  traffic  will  bear"  has,  for  some 
not  very  obvious  reason,  undoubtedly  acquired  an  ill  repute.  On 
the  face  of  it,  it  surely  seems  to  represent  a  principle,  not  of  extor- 
tion, but  of  moderation.  To  charge  what  the  traffic  can  bear  is,  in 
other  words,  not  to  charge  what  the  traffic  cannot  bear.  Yet  the 
phrase  is  commonly  understood  quite  differently.  It  has  been  as- 
serted that  railway  managers  claim  to  estimate  for  themselves  pro- 
duction cost  at  A  and  selling  price  at  B,  and  to  appropriate  as  rail- 
way rate  the  entire  difference:  The  truth  is  that,  whatever  rash 
statements  have  been  made  by  individual  railway  men  under  pecu- 
liar conditions,  no  railway  administration  has  ever  acted  on  any 
such  principle. 

The  real  meaning  of  the  phrase  is  that  within  limits — the  su- 
preme limit  of  what  any  particular  traffic  can  afford  to  pay,  and  the 
inferior  limit  of  what  the  railroad  can  afford  to  carry  it  for — rail- 
way charges  for  different  categories  of  traffic  are  fixed,  not  accord- 
ing to  an  estimated  cost  of  service,  but  roughly  on  the  principle 
of  equality  of  sacrifice  by  the  payer.  So  regarded,  "what  the  traffic 
will  bear''  is  a  principle,  not  of  extortion,  but  of  equitable  conces- 
sion to  the  weaker  members  of  the  community.  Had  railway  man- 
agers in  the  past  declared  that  their  principle  was  "tempering  the 
wind  to  the  shorn  lamb,"  their  descriptive  accuracy  would  have 
been  great,  while  their  popularity  might  have  been  even  greater. 
Somehow  the  total  cost  of  maintaining  and  operating  the  railway 
has  to  be  paid  for ;  broadly  and  in  the  long  run,  the  capital  invested 
in  railway  construction  must  be  remunerated  at  the  normal  rate  of 
interest.  Can  any  system  of  apportionment  of  this  necessary  ex- 
penditure be  more  equitable  than  one  under  which  the  rich — well- 
to-do  passengers,  valuable  freight,  traffic  with  the  advantage  of 
geographical  situation  close  to  the  markets,  and  the  like — contribute 
of  their  abundance;  while  the  poor — immigrant  passengers,  bulky 
articles  of  small  value,  traffic  that  has  to'travel  far  to  find  a  market, 
and  so  forth — are  let  off  lightly  on  the  ground  of  their  poverty? 
Translated  into  railway  language  the  principle  means  this :  the  total 
railway  revenue  is  made  up  of  rates  which,  in  the  case  of  traffic 
unable  to  bear  a  high  rate,  are  so  low  as  to  cover  hardly  more  than 
the  actual  out-of-pocket  expenses ;  which,  in  the  case  of  medium- 
class  traffic,  cover  both  out-of-pocket  expenses  and  a  proportionate 
part  of  the  unappropriated  cost;  and  which  finally,  in  the  case  of 

*^ Adapted  from  The  Elements  of  Railway  Economics,  75-78.  Published 
by  the  Qarendon  Press,  Oxford  (1904). 


378  CURRENT  ECONOMIC  PROBLEMS 

high-grade  traffic,  after  covering  the  traffic's  own  out-of-pocket 
expenses,  leaves  a  large  and  disproportionate  surplus  available  as 
a  contribution  toward  the  unappropriated  expenses  of  the  low-class 
traffic,  which  such  traffic  itself  could  not  afford  to  pay. 

This,  in  principle  and  in  outline,  is  the  system  of  charging  what 
the  traffic  can  bear.  It  is  the  system  which  is,  always  has  been, 
and  always  must  be  adopted  on  all  railways,  whether  they  be  state 
enterprises  or  private  undertakings.  It  is  a  system  at  once  in  the 
interest  of  the  railway,  because  even  the  lowest  class  traffic,  by 
whatever  small  amount  its  rates  exceed  the  additional  cost  of  doing 
the  business,  contributes  to  the  general  expenses  of  the  undertaking ; 
in  the  interest  of  the  public,  because  traffic  is  thereby  made  possible 
which  could  not  come  into  existence  at  all,  if  each  item  of  traffic 
were  required  to  bear,  not  only  its  direct  expenses,  but  its  full  share 
of  all  the  standing  charges;  and  in  the  interest  of  the  high-grade 
traffic,  because  everything  which  the  low-grade  traffic  pays  beyond 
its  own  actual  out-of-pocket  cost  helps  to  defray  the  general  expenses 
of  the  undertaking,  which  otherwise  the  high-grade  traffic  would 
have  to  bear  unaided. 


190.     The  Rate  Theory  of  the  Interstate  Commerce  Commission^* 

BY  M.  B.   HAMMOND 

The  tendency  of  the  Interstate  Commerce  Commission's  decis- 
ions is,  on  the  whole,  towards  a  cost  of  service  theory  of  rate  mak- 
ing. The  following  is  an  attempt  at  the  task  of  so  stating  a  theory 
of  rates  as  to  bring  in  the  various  considerations  which  the  Com- 
mission has  emphasized  as  factors  in  rate  making,  and  show  how 
they  can  be  related  to  the  fundamental  principle.  It  is  perhaps  well 
to  say  that  nowhere  has  the  Commission  undertaken  to  state  such  a 
comprehensive  theory  of  rate  making. 

1.  In  any  system  of  government-made  or  government- regulated 
railway  rates,  it  wold  seem  that  this  fundamental  economic  principle 
should  be  kept  in  mind :  to  perform  the  service  of  transporting  per- 
sons and  goods  with  the  least  possible  expenditure  of  social  energy. 

2.  One  transportation  route  or  one  transportation  system 
should  never  be  allowed  to  take  from  another  route  or  system, 
merely  as  a  consequence  of  competition,  traffic  which  the  latter  route 
or  system  can  carry  at  less  expense. 

^'Adapted  from  Railroad  Rate  Theories  of  the  Interstate  Commerce  Com- 
mission, 192-195.  Copyright  by  the  Quarterly  Journal  of  Economics  and  by 
Harvard  University  (1911). 


RAILWAY  REGULATION  379 

3.  Rates  should  be  so  adjusted  as  never  to  take  from  a  place 
its  natural  geographical  advantages  of  location;  but  natural  advan- 
tages should  not  be  so  construed  as  to  mean  monopoly  privileges. 

4.  Railway  rates  as  a  whole  should  just  cover  costs  as  a  whole 
allowing  for  a  normal  rate  of  return  on  capital  actually  invested, 
a  normal  return  for  labor  of  all  sorts,  and  for  depreciation,  but  not 
for  betterments.  This  would  not  mean  that  superior  efficiency  in 
railway  management  was  not  entitled  to  reap  the  rewards  of  its 
superiority  in  the  same  way  it  does  in  the  ordinary  industrial  es- 
tablishment where  competition  rules.  On  the  other  hand,  the  rule 
must  not  be  construed  to  mean  that  any  investment  in  a  railroad, 
no  matter  how  foolishly  or  recklessly  made,  is  entitled  to  exact  high 
rates  from  persons  and  industries  along  the  line  in  order  to  earn 
current  interest  rates  or  dividends.  Railway  property  is  not  more 
sacred  than  other  property,  nor  are  railway  investors  immune  from 
the  consequences  of  their  own  acts. 

5.  Each  commodity  transported  should,  as  far  as  possible,  be 
made  to  defray  its  own  share,  not  only  of  operating  and  terminal 
costs,  but  also  of  the  fixed  costs  and  dividends.  It  is  possible  under 
modern  accounting  methods  to  determine  these  costs  with  an  ap- 
proximate degree  of  accuracy  for  the  principal  commodities  and 
classes  of  traffic.  The  rates  on  other  commodities  may  be  deter- 
mined by  comparing  their  ascertainable  costs  with  those  of  the 
principal  commodities,  and  to  a  lesser  extent  by  a  comparison  of 
the  relative  values  of  the  commodities. 

6.  Differences  in  distance  may  be  made  a  test  of  the  reason- 
ableness of  differences  in  rates  where  other  conditions  appear  to 
be  similar;  yet  the  general  rule  must  be  kept  in  mind  that  though 
the  aggregate  charge  should  increase  as  distance  increases,  the  ton- 
mile  rate  should  decrease. 

7.  Where  the  application  of  none  of  the  above  principles  seems 
practicable,  competition,  which  has  been  conducted  in  a  normal 
manner  over  a  period  of  several  years,  may  be  assumed  to  have  es- 
tablished a  fair  relation  of  rates. 

8.  A  reasonable  rate  is  one  which  yields  a  reasonable  compen- 
sation for  the  sersace  rendered.  If  a  given  rate  is  reasonable  in 
this  sense,  an  increase  in  the  price  of  the  commodity  or  in  the 
profits  to  the  producer  will  not  be  a  valid  excuse  for  increasing  the 
railway  rate.  The  carrier  will  justly  share  in  the  increased  pros- 
perity of  the  producer  by  securing  a  larger  traffic  in  this  com- 
modity. 

The  possibility  of  applying  these  rules  to  the  business  of  rail- 
way transportation  is  proved  by  the  fact  that  the  application  of 


38o  CURRENT  ECONOMIC  PROBLEMS 

every  one  of  them  can  be  shown  by  illustrations  taken  from  the 
Commission's  decisions.  Their  consistent  application  would  mean 
that  the  railroads  would  neither  tax  the  industries  of  the  country 
nor  have  their  own  investments  sacrificed ;  they  would  not  build 
up  one  place  of  industry ;  they  would  not  take  from  some  persons 
or  commodities  their  proportionate  share  of  the  costs  of  transpor- 
tation and  impose  them  upon  other  persons  and  commodities ;  and 
finally  they  would  not  by  their  system  of  rate  making  retard  indus- 
trial progress  or  have  their  own  development  hindered  by  failing 
credit  or  lack  of  revenue. 


E.     VALUATION  OF  THE  RAILROADS 
191.     Necessity  for  Valuation  of  Railway  Property^® 

The  Commission  desires  to  reaffirm  its  opinion  that  it  would  be 
wise  for  Congress  to  make  provision  for  a  physical  valuation  of 
railway  property.  The  increased  responsibilities  imposed  upon  the 
Commission  make  continually  clearer  the  importance  of  an  authori- 
tative valuation  of  railway  property,  made  in  a  uniform  manner  for 
all  carriers  in  all  parts  of  the  country. 

In  the  first  place,  the  Commission  has  been  called  upon  to  pass 
judgment  upon  certain  rate  cases,  in  which  the  reasonableness  of  a 
general  level  of  rates  was  brought  into  question,  and  for  such  cases 
one  of  the  most  important  considerations  is  the  amount  of  profit 
secured  to  the  investment.  The  actual  investment  in  an  enterprise 
needed  for  giving  the  public  adequate  transportation  facilities  is 
entitled  to  a  reasonable  return,  and  no  more  than  a  reasonable 
return,  in  the  form  of  a  constant  profit ;  and  a  reasonable  schedule 
of  rates  is  one  that  will  produce  such  a  return. 

There  is  a  growing  tendency  on  the  part  of  carriers  to  meet 
attacks  upon  their  rates  by  making  proof,  through  their  own  ex- 
perts, of  the  cost  of  reproducing  their  physical  properties.  It  is 
obviously  impossible  for  shippers  who  are  complainants  in  such 
cases  to  meet  and  rebut  such  testimony,  or  even  intelligently  cross- 
examine  the  railroad  witness  by  whom  such  proof  is  made.  In 
addition  to  the  large  expense  of  retaining  experts  competent  to 
make  such  investigations,  the  shippers  have  no  access  to  the  prop- 
erty of  the  carriers  or  to  their  records  showing  the  cost  of  con- 
struction and  other  necessary  information.  The  carriers,  on  the 
other  hand,  having  access  to  the  records  and  property,  can  use  the 

^'Adapted  from  the  Twenty-Second  Annual  Report  of  the  Interstate  Com- 
merce Commission,  83-85  (1908). 


RAILWAY  REGULATION  381 

information  compiled  from  them  or  not,  in  any  given  case,  as  their 
interests  may  require. 

A  second  consideration  is  the  importance  which  the  question  of 
capitalization  has  assumed  in  recent  years.  No  one  at  the  present 
time  can  say  whether  railways  are  undercapitalized  or  overcapital- 
ized. A  valuation  adequate  to  this  problem  should  not  stop  with 
the  simple  statement  of  an  amount;  on  the  contrary,  it  should  ana- 
lyze the  amount  ascertained  according  to  the  sources  from  which 
the  value  accrues  and  show  the  economic  character  as  well  as  the 
industrial  significance  of  the  several  forms  of  value. 

A  third  argument  is  found  in  the  present  unsatisfactory  condi- 
tion of  railway  balance  sheets.  The  balance  sheet  is,  perhaps,  the 
most  important  of  the  statements  that  may  be  drawn  from  the 
accounts  of  corporations ;  for,  if  correctly  drawn,  it  contains  not 
only  a  classified  statement  of  corporate  assets  and  corporate  liabili- 
ties, but  it  provides  in  the  balance,  that  is  to  say,  the  "profit  and 
loss,"  a  quick  and  trustworthy  measure  of  the  success  that  has 
attended  the  operation  and  management  of  the  property.  Every 
balance  sheet  begins  with  "cost  of  property,"  against  which  is  set  a 
figure  which  purports  to  stand  for  the  investment.  At  present  no 
court,  commission,  accountant,  or  financial  writer  would  for  a  mo- 
ment consider  the  present  balance  sheet  statement,  purporting  to 
give  the  "cost  of  property,"  even  in  a  remote  degree,  as  a  reliable 
measure  either  of  the  money  invested  or  of  present  value.  Thus, 
at  the  first  touch  of  critical  analysis,  the  balance  sheets  of  American 
railways  are  found  to  be  inadequate.  They  are  incapable  of  ren- 
dering the  service  which  may  rightly  be  demanded  of  them.  The 
only  possible  cure  for  such  a  situation  is  for  the  government  to 
make  an  authoritative  valuation  of  railway  property,  and  to  pro- 
vide that  the  amounts  so  determined  be  entered  upon  the  books  of 
the  carriers  as  the  accepted  measure  of  capital  assets.^" 

192.     Market  Value  as  a  Basis  for  Rates^^ 

BY  ROBERT  H.  WRITTEN 

The  theory  that  rates  should  be  based  upon  market  value  would 
allow  the  railroads  a  return  on  monopoly  value  from  favorable 
location.  Such  a  monopoly  value  is  not  usually  claimed  for  utili- 
ties.    It  is  somewhat  similar  to  the  claim  that  location  in  the  city 

•"An  Act  of  Congress,  of  March  i,  1913,  provided  for  the  valuation  of  the 
property  of  all  common  carriers  in  the  United  States  under  the  direction  of 
the  Interstate  Commerce  Commission. 

*^Adapted  from  Valuation  of  Public  Service  Corporations,  53-55.  Copy- 
right by  the  author  (1912). 


382  CURRENT  ECONOMIC  PROBLEMS 

streets  under  a  franchise  can  be  capitalized  for  rate  valuation  pur- 
poses. A  closer  parallel,  however,  is  the  case  of  a  water  supply 
plant  that  has  secured  the  most  economical  source  of  supply.  It  is 
inconsistent  with  what  is  believed  to  be  the  governing  principle  of 
justice  and  equity  which  forms  the  basis  of  public  service  control, 
that  rates  should  be  increased,  in  order  to  pay  a  return  on  the 
capitalized  value  of  exclusive  location  or  other  monopoly  advantage 
that  represents  no  actual  investment.  A  railroad  exercises  the  right 
of  eminent  domain  to  secure  its  location  and  the  right  of  eminent 
domain  can  only  be  lawfully  exercised  for  a  public  purpose.  The 
location  secured  by  this  method  for  a  public  purpose  cannot  justly 
create  a  monopoly  that  will  be  capitalized  against  the  very  public 
purpose  that  it  was  intended  to  serve — the  transportation  of  freight 
and  passengers. 

By  the  above  method  rates  are  based  on  cost,  but  not  necessarily 
on  the  cost  of  the  road  itself,  but  in  many  cases  on  the  cost  of  a 
competing  or  hypothetical  road.  Market  value  has  nothing  to  do 
with  the  rate  question  as  thus  considered.  It  is  only  set  up  after 
the  rates  are  in  fact  determined.  To  be  sure,  the  theory  is  that  rates 
are  based  on  a  fair  return  on  the  market  value  of  the  road  under 
reasonable  rates.  The  impossibility  of  basing  reasonable  rates  on 
a  market  value  that  is  itself  determined  by  reasonable  rates  is  appar- 
ent. It  is  a  clear  case  of  reasoning  in  a  circle.  We  have  the  evi- 
dent absurdity  of  requiring  the  answer  to  the  problem  before  we 
can  undertake  its  solution.  Market  value  is  not  really  a  part  of 
the  process  but  the  final  result.  It  includes  in  many  cases  a  cap- 
italization of  certain  monopoly  profits  and  the  monopoly  value  thus 
created  is  set  up  as  justifying  the  higher  rates  which  have  in  fact 
created  the  monopoly  value. 

193.     Physical  Valuation  as  the  Basis  of  Rates^* 

•    BY  SAMUEL  O.  DUNN 

In  recent  years  a  new  theory  of  the  proper  way  to  ascertain  the 
reasonableness  of  rates  has  gained  wide  acceptance.  Many  believe 
that  the  railways  of  this  country  are  overcapitalized.  They  think, 
therefore,  that  the  return  on  their  capitalization  is  not  a  criterion 
of  the  reasonableness  of  their  rates.  The  sole  true  criterion,  they 
believe,  is  a  "fair  return"  on  the  "fair  value"  of  the  properties  of 
the  railways ;  a  "fair  return"  is  the  current  rate  of  interest ;  and 
therefore  the  government  should  make  a  valuation  of  the  properties, 

'"Adapted  from  The  American  Transportation.  Question,  84-95.  Copy- 
right by  D.  Appleton  &  Co.  (1912). 


RAILWAY  REGULATION  383 

and  in  future  so  regulate  rates  as  to  restrict  net  earnings  to  the 
current  rate  of  interest  on  this  valuation. 

Many  believe  that  large  amounts  of  net  earnings,  that  legally 
might  have  been  paid  out  to  the  stockholders,  have  instead  been 
invested  in  the  properties.  The  properties  also  contain  a  large 
amount  of  so-called  "unearned  increment."  It  is  argued  that,  as 
railways  are  public  service  corporations,  their  owners  are  not  en- 
titled to  receive  a  return  on  those  parts  of  their  value  which  have 
been  created  by  the  investment  of  earnings  or  by  increases  in  the 
value  of  real  estate  caused  by  the  industrial  development  of  the 
country. 

The  owners  and  managers  contend,  on  the  other  hand,  that  in 
any  estimate  that  may  be  made  of  the  value  of  the  properties  on 
which  a  return  should  be  allowed  to  be  earned,  every  factor  enter- 
ing into  their  present  value  should  be  considered.  The  net  earn- 
ings, they  say,  belong  to  the  stockholders.  They  may  either  invest 
them  or  pay  them  out  as  dividends;  and  where  they  have  chosen 
to  invest  them  the  value  thereby  added  belongs  to  them.  They 
also  own  the  real  estate  used  for  railway  purposes  as  absolutely — 
so  long  as  it  is  used  for  railway  purpose — as  the  farmer  owns  his 
farm ;  and  therefore  they  have  the  same  right,  it  is  said,  to  profit 
by  increases  in  its  value. 

From  a  leg-al  standpoint  the  spokesmen  for  the  railways  seem 
to  have  the  better  of  the  argument.  The  fifth  and  fourteenth 
amendments  to  the  Federal  Constitution  prohibit  the  Nation  and 
the  States  from  taking  private  property  for  public  use  without  due 
process  of  law  and  just  compensation.  When  the  railway,  in  the 
exercise  of  the  power  of  eminent  domain,  takes  the  farmer's  land, 
these  provisions  are  construed  to  mean  that  it  must  pay  him  for  it 
— not  what  it  cost  him — but  its  reasonable  market  value  at  the  time 
that  it  is  taken.  A  similar  construction  of  the  same  provisions  as 
they  apply  to  railways  would  require  that  rates  should  be  so  regu- 
lated as  to  enable  the  railways  to  earn  a  return  on  the  value  of  their 
properties  at  the  time  that  the  rates  are  being  regulated,  however 
the  value  may  have  been  created.  For  if  the  rates  w^ere  so  regulated 
as  to  disable  the  company  from  earning  a  return  on  any  part  of  the 
value  of  its  property  this  would  be,  in  effect,  to  take  so  much  of 
its  value. 

Any  plan  for  valuation,  other  than  present  value  is  indefensible. 
Cost  of  reproduction  is  no  exception.  It  costs  on  the  average  from 
one  and  one-third  to  three  times  as  much  to  get  land  for  railway 
as  for  other  purposes.  This  is  because  its  acquisition  and  use  for 
railway  purposes  involve  damage  to  adjacent  property  which  must 


384  CURRENT  ECONOMIC  PROBLEMS 

be  paid  for,  and  because  land  that  is  directly  in  the  path  of  a  com- 
ing railway  attains  a  monopoly  value.  The  Railroad  Commission 
of  Minnesota,  in  making  its  valuation  of  the  railways  of  that  state, 
held  that  the  appraisal  of  railway  land  should  be  based  on  the 
value  of  adjacent  land  used  for  other  purposes. 

But  how,  railway  men  ask,  can  what  the  farmer  would  have  to 
pay  for  land  properly  be  used  as  a  factor  in  estimating  what  it 
would  cost  to  reproduce  the  railway?  Suppose  that  adjacent  farm 
land  were  worth  $100  an  acre;  that  the  valuation  of  an  established 
railway  were  made  on  this  basis;  and  that  afterward  there  was 
built  a  new  and  competing  line,  to  which  the  actual  cost  of  land  was 
$200  an  acre.  The  competitive  rates  on  competing  railways  must 
be  the  same.  If  the  rates  of  the  older  railway  were  to  be  so  fixed 
as  to  restrict  it  to  a  return  on  $100  an  acre,  the  new  railway  would 
have  to  meet  them  and  might  thereby  be  deprived  of  the  opportunity 
to  earn  a  return  on  part  of  its  actual  investment.  This  would  tend 
to  discourage  new  railway  construction. 

The  Railroad  Commission  of  Washington  met  a  situation  simi- 
lar to  this  when  it  made  its  valuation  of  the  railways  of  that  state. 
The  Northern  Pacific,  many  years  ago,  acquired  land  for  extensive 
terminals  on  Puget  Sound  at  a  low  price.  The  Harriman  lines 
recently  built  to  Puget  Sound,  and  because  of  the  increase  in  the 
value  of  land  had  to  pay  very  much  more  for  it.  The  two  systems 
were  competitors,  and  had  to  make  the  same  competitive  rates.  To 
have  based  the  valuation  of  the  Northern  Pacific's  land  on  its  orig- 
inal cost,  or  on  its  estimated  value  for  other  than  railway  purposes, 
might  have  prevented  the  Harriman  lines  from  earning  a  fair  re- 
turn on  the  actual  cost  of  their  land.  The  Commission,  therefore, 
based  the  valuation  of  the  land  of  both  roads  on  its  present  esti- 
mated cost  of  acquisition  for  railway  purposes. 

Another  important  point  in  estimating  the  cost  of  reproducing 
the  physical  plants  of  railways  is  what  deduction  should  be  made 
for  depreciation,  and  what  addition  should  be  made  for  apprecia- 
tion, in  the  value  of  their  various  parts.  The  moment  a  rail  or  tie 
is  laid,  or  a  signal  tower  or  station  is  finished,  it  begins  to  deterior- 
ate, owing  to  use,  and  the  ordinarily  insidious,  but  often  violent, 
ravages  of  the  elements.  But  while  the  depreciation  is  going  on 
there  is  also  appreciation  going  on.  As  soon  as  a  new  line  is  fin- 
ished maintenance  forces  are  put  to  work,  if  it  is  well  managed, 
which  limit  the  depreciation  that  takes  place  by  making  constant 
repairs  and  renewals.  If  a  deduction  from  the  cost  of  reproduction 
should  be  made  because  of  depreciation,  an  addition  to  it  should  be 
made  because  of  appreciation. 


RAILWAY  REGULATION  385 

According  to  the  widely  accepted  theory,  as  soon  as  an  estimate 
of  the  cost  of  physical  reproduction  is  finished,  we  should  go  ahead 
and  so  regulate  rates  on  a  road  as  to  limit  each  carrier  to  the  same 
return.  But  is  such  an  estimate  a  valuation?  Indubitably,  other 
things  being  equal,  a  railway  having  a  good  physical  plant  is  more 
valuable  than  one  having  a  poor  one.  But,  surely,  the  estimated 
cost  of  reproducing  a  railroad's  plant  is  not  the  value  of  the  plant ; 
and  the  value  of  the  plant  is  not  the  value  of  the  railroad. 

A  railway  through  mountainous  country  might  be  more  expen- 
sive to  reproduce  than  one  built  through  easy  prairie  country ;  but 
the  latter's  plant  may  be  the  more  valuable,  simply  because  it  is  the 
better  machine  for  rendering  transportation. 

Again,  of  two  roads  having  equally  good  physical  plants,  that 
having  the  larger  net  earnings  is  plainly  the  more  valuable.  Now, 
net  earnings  do  not  depend  solely  on  rates.  They  are  the  margin 
between  gross  earnings  and  operating  expenses.  Gross  earnings 
depend  not  only  on  the  rates  charged,  but  on  the  nature  and  density 
of  traffic.  These,  in  turn,  result  largely  from  the  energy  and  skill 
used  by  the  traffic  department  of  the  railway  in  attracting  popula- 
tion to  its  lines,  teaching  the  farmers  how  to  increase  the  produc- 
tivity of  the  soil,  securing  the  opening  of  mines  and  the  location  of 
factories,  and  so' adjusting  rates  as  to  enable  producers  in  the  terri- 
tory to  compete  successfully  in  the  markets  of  the  entire  country 
and  of  the  world  against  the  producers  in  other  sections  and  coun- 
tries. Whether  operating  expenses  shall  be  high  or  low  in  propor- 
tion to  gross  earnings  depends  on  the  enterprise  and  skill  used  by 
the  management  in  reducing  the  grades  and  eliminating  the  curva- 
ture in  track,  in  enlarging  terminals,  developing  esprit  de  corps 
among  officers  and  employees,  increasing  shop  efficiency,  augment- 
ing tonnage  per  car  and  per  train  load,  and  in  a  hundred  other  ele- 
ments of  good  management.  A  road  whose  traffic  is  large  and 
whose  operating  expenses  are  relatively  small  obviously  would  have 
larger  net  earnings,  and,  therefore,  be  a  more  valuable  property 
than  a  road  on  which  the  traffic  is  relatively  small  and  the  operating 
expenses  relatively  high,  on  any  basis  of  rates  whatever  that  might 
be  applied  on  both. 

Large  traffic  and  relatively  low  operating  expenses  are  strong 
evidences  of  good  management.  If  valuation  were  based  entirely 
on  the  cost  of  physical  reproduction,  and  the  net  earnings  of  each 
road  could  be,  and  were,  limited  to  the  same  amount,  the  better 
managed  roads  would  be  deprived  of  the  fruits  of  their  good  man- 
agement. 


386  CURRENT  ECONOMIC  PROBLEMS 

As  a  matter  of  fact,  such  regulation  probably  would  be  entirely 
impracticable ;  for  the  competitive  rates  on  different  roads  must  be 
the  same;  and,  owing  to  the  differences  in  density  of  traffic  and 
operating  expenses,  no  two  roads  cliarging  the  same  rates  could 
be  made  to  earn  the  same  percentages  on  their  valuations. 


■   194.     The  "Railway- Value"  of  Land"' 

It  is  manifest  that  an  attempt  to  estimate  what  would  be  the 
actual  cost  of  acquiring  the  right  of  way  if  the  railroad  were  not 
there  is  to  indulge  in  mere  speculation.  The  railroad  has  long  been 
established;  to  it  have  been  linked  the  activities  of  agriculture,  in- 
dustry, and  trade.  Communities  have  long  been  dependent  upon 
its  service,  and  their  growth  and  development  have  been  conditioned 
upon  the  facilities  it  has  provided.  The  uses  of  property  in  the 
communities  which  it  serves  are  to  a  large  degree  determined  by 
it.  The  values  of  property  along  its  line  largely  depend  upon  its 
existence.  It  is  an  integral  part  of  the  communal  life.  The  assump- 
tion of  its  non-existence,  and  at  the  same  time  that  the  values  that 
rest  upon  it  remain  unchanged,  is  impossible  and  cannot  be  enter- 
tained. The  conditions  of  ownership  of  the  property  and  the 
amounts  which  would  have  to  be  paid  in  acquiring  the  right  of  way, 
supposing  the  railroad  to  be  removed,  are  wholly  beyond  reach  of 
any  process  of  rational  determination.  The  cost-of-reproduction 
method  is  of  service  in  ascertaining  the  present  value  of  the  plant, 
when  it  is  reasonably  applied  and  when  the  cost  of  reproducing  the 
property  may  be  ascertained  with  a  proper  degree  of  certainty.  But 
it  does  not  justify  the  acceptance  of  results  which  depend  upon  mere 
conjecture. 

The  question  is  whether,  in  determining  the  fair  present  value 
of  the  property  of  the  railroad  company  as  a  basis  of  its  charges  to 
the  public,  it  is  entitled  to  a  valuation  of  its  right  of  way  not  only 
in  excess  of  the  amount  invested  in  it,  but  also  in  excess  of  the 
market  value  of  contiguous  and  similarly  situated  property.  For 
the  purpose  of  making  rates,  is  its  land  devoted  to  the  public  use 
to  be  treated  (irrespective  of  improvements)  not  only  as  increasing 
in  value  by  reason  of  the  activities  and  general  prosperity  of  the 
community,  but  as  constantly  outstripping  in  this  increase  all  neigh- 
boring lands  of  like  character,  devoted  to  other  uses?  If  rates  laid 
by  competent  authority,  state  or  national,  are  otherwise  just  and 

'''Adapted  from  the  opinion  of  the  court  in  Simpson  v.  Shepard,  33  Su- 
preme Court  Reporter  761  (1913).  This  is  the  well-known  "Minnesota  Rate 
Case." 


RAILWAY  REGULATION  387 

reasonable,  are  they  to  be  held  to  be  unconstitutional  and  void  be- 
cause they  do  not  permit  a  return  upon  an  increment  so  calculated  ? 

It  is  clear  that  in  ascertaining  the  present  value  we  are  not  limit- 
ed to  the  consideration  of  the  amount  of  the  actual  investment.  If 
that  has  been  reckless  or  improvident,  losses  may  be  sustained 
which  the  community  does  not  underwrite.  As  the  company  may 
not  be  protected  in  its  actual  investment,  if  the  value  of  its  property 
be  plainly  less,  so  the  making  of  a  just  return  for  the  use  of  the 
property  involves  the  recognition  of  its  fair  value  if  it  be  more 
than  its  cost.  The  property  is  held  in  private  ownership,  and  it  is 
that  property,  and  not  the  original  cost  of  it,  of  which  the  owner 
may  not  be  deprived  without  due  process  of  law.  But  still  it  is 
property  employed  in  a  public  calling,  subject  to  governmental  reg- 
ulation, and  while,  under  the  guise  of  such  regulation,  it  may  not 
he  confiscated,  it  is  equally  true  that  there  is  attached  to  its  use  the 
condition  that  charges  to  the  public  shall  not  be  unreasonable.  And 
where  the  inquiry  is  as  to  the  fair  value  of  the  property,  in  order 
to  determine  the  reasonableness  of  the  return  allowed  by  the  rate- 
making  power,  it  is  not  admissible  to  attribute  to  the  property 
owned  by  the  carriers  a  speculative  increment  of  value,  over  the 
amount  invested  in  it  and  beyond  the  value  of  similar  property 
owned  by  others,  solely  by  reason  of  the  fact  that  it  is  used  in  the 
public  service.  That  would  be  to  disregard  the  essential  conditions 
of  the  public  use,  and  to  make  the  public  use  destructive  of  the 
public  right. 

The  increase  sought  for  "railway  value"  in  these  cases  is  an 
increment  over  all  outlays  of  the  carrier  and  over  the  values  of 
similar  land  in  the  vicinity.  It  is  an  increment  which  cannot  be 
referred  to  any  known  criterion,  but  must  rest  on  a  mere  expression 
of  judgment  which  finds  no  proper  test  or  standard  in  the  transac- 
tions of  the  business  world. 

Assuming  that  the  company  is  entitled  to  a  reasonable  share  in 
the  general  prosperity  of  the  communities  which  it  serves,  and  thus 
to  attribute  to  its  property  an  increase  in  value,  still  the  increase  so 
allowed,  apart  from  any  improvements  it  may  make,  cannot  properly 
extend  beyond  the  fair  average  of  the  normal  market  value  of  land 
in  the  vicinity  having  a  similar  character.  Otherwise  we  enter  the 
realm  of  mere  conjecture.  We  therefore  hold  that  it  was  error  to 
base  the  estimates  of  value  of  the  right  of  way,  yards,  and  terminals 
upon  the  so-called  "railway  value"  of  the  property.  The  company 
would  certainly  have  no  ground  of  complaint  if  it  were  allowed  a 
value  for  these  lands  equal  to  the  fair  average  market  value  of  sim- 
ilar land  in  the  vicinity. 


388  CURRENT  ECONOMIC  PROBLEMS 

F.     GOVERNMENT  OWNERSHIP  OF  RAILROADS 
195/    The  Drift  toward  Government  Ownership^* 

BY  FRANK  HAIGH  DIXON 

We  have  reached  a  point  in  the  regulation  of  railways  where 
competition  in  rates  to  any  great  degree  is  hardly  probable.  Econ- 
omists have  frequently  demonstrated  the  undesirability  of  encour- 
aging competition  between  industries  subject  to  the  law  of  increasing 
returns,  and  particularly  between  railways  which  have  such  enor- 
mous fixed  plants  in  relation  to  the  business  done.  Regulation  has 
been  substituted  for  competition  as  a  public  safeguard.  But  this 
principle  of  regulation  has  now  been  carried  so  far  that  the  rate- 
fixing  power  has  virtually  been  taken  out  of  the  hands  of  the  rail- 
ways and  transferred  to  the  Interstate  Commerce  Commission. 
Rates  are  rapidly  becoming  hardened  at  the  maximum  point  fixed 
by  the  Commission,  and  competition,  at  least  among  parallel  rail- 
ways, has  largely  disappeared. 

But  the  statement  is  frequently  made  that  even  though  compe- 
tition in  rates  is  ended,  railways  should  be  prevented  from  agree- 
ments with  one  another  in  order  that  the  public  may  enjoy  the 
benefits  of  competitive  service.  But  what,  it  may  be  asked,  is  an 
improvement  in  service  but  a  reduction  in  rates  ?  And  why  may  not 
the  practice  of  rebating  be  pursued  in  this  manner  even  more  suc- 
cessfully than  by  the  more  crude  method  of  returning  a  part  of  the 
freight  money? 

In  fact,  in  the  knotty  problems  with  which  the  Commission  has 
wrestled,  such  as  elevator  allowances,  transit  privileges,  the  absorp- 
tion of  switching  charges,  the  spotting  of  cars,  there  is  a  clear  rec- 
ognition of  the  fact  that  these  services  are  fundamentally  problems 
of  rates,  that  they  must  be  adjusted  by  the  regulating  body,  that 
they  must  be  uniform  and  non-discriminatory,  and  that  they  must 
be  filed  as  rates  are  filed  for  public  inspection  and  criticism. 

It  is  the  pressure  of  competitive  service  that  has  driven  the 
railroads  into  the  impossible  position  which  some  of  them  now 
occupy  where  they  are  absorbing  terminal  services  of  such  an  ex- 
pensive character  that  they  are  left  with  scarcely  enough  of  the  total 
rate  to  pay  operating  expenses;  where  the  industrial  plants  are 
receiving  from  the  railways  a  portion  of  the  freight  rate  for  the 
privilege  of  hauling  their  own  cars  about  their  own  yards,  with 
their  own  locomotives.     Free  storage,  free  loading  and  unloading, 

** Adapted  from  "The  Economic  Significance  of  Interlocking  Directorates 
in  Railway  Finance,"  in  the  Journal  of  Political  Economy,  XXII,  952-954 
(1914). 


RAILWAY  REGULATION  389 

free  collection  and  delivery,  refrigerator  service,  milling  in  transit, 
prompt  and  abundant  provision  of  cars,  preferred  services  in  the 
matter  of  speed ;  all  of  these  practices  and  many  more  have  resulted 
in  discriminations  and  have  depleted  the  revenues  of  the  roads. 
Reduced  to  their  lowest  terms  these  are  all  questions  of  rates,  if 
not  of  rebates.  From  this  tangle  of  inconsistent  and  unprofitable 
relations  into  which  the  railways  have  been  forced  by  the  pressure 
of  competition,  they  can  be  extricated  only  with  the  aid  of  the  Inter- 
state Commerce  Commission, 

There  seems  to  me  to  be  but  one  outcome.  Before  long  the  Com- 
mission will  be  compelled  to  regulate  service  quite  as  rigidly  as  it 
does  rates.  All  the  power  necessary  to  do  so  is  already  theirs  by 
statute,  and  they  have  already  in  many  individual  cases  made  sig- 
nificant rulings  that  involve  problems  of  service. 

When  that  day  comes,  and  it  is  not  far  in  the  future,  when  the 
Commission  assumes  as  complete  control  of  service  as  it  has  already 
done  of  rates,  it  will  then  be  of  little  or  no  public  concern  whether 
parallel  and  competing  railways  are  or  are  not  interlocked.  That 
every  evil  of  a  monopoly  character  would  then  be  done  away  with 
for  good  and  all  I  do  not  assert.  That  would  be  placing  too  low 
an  estimate  on  the  ingenuity  of  the  financial  juggler.  But  the  public 
advantages  of  co-operation  on  the  part  of  the  large  railway  systems 
so  decidedly  outweigh  any  remote  disadvantages  that  there  seems 
no  justification  for  a  prevention  of  interlocking  relationships.  Such 
close  co-operation  will  work,  not  to  the  restraining  of  trade  unrea- 
sonably, but  rather  to  its  liberation,  for  it  will  permit  the  execution 
of  co-operative  plans  for  relief  in  many  situations  that  are  now 
wastefully  handled.  It  will  permit  the  application  of  principles  of 
scientific  economic  railway  operation  to  the  railway  system  as  a 
whole. 

It  is  a  curious  myopia  that  persists  among  the  American  people 
and  demands  competition  between  these  great  industries  to  the  cer- 
tain burdening  of  them  ultimately  with  its  inevitable  costs.  Yet  with 
this  prejudice  against  combination  lodged  in  the  breasts  of  the  peo- 
ple, the  movement  of  events  as  expressed  in  legislation  has  been 
steadily  away  from  reliance  upon  the  efficacy  of  competition  and  in 
the  direction  of  more  and  more  rigid  regulation.  That  it  will  stop 
short  of  government  ownership  does  not  seem  at  all  clear. 

196.     Government  Ownership  as  a  Refuge^'' 

President  W.  W.  Finley,^*  in  his  thoughtful  and  suggestive  ad- 
dress before  the  New  York  Traffic  Club,  made  one  remark  which 

** Adapted  from  an  editorial  in  the  Railway  World,  March  13,  1908. 
**The  late  president  of  the  Southern  Railway. 


390  CURRENT  ECONOMIC  PROBLEMS 

we  earnestly  commend  to  the  attention  of  railway  stockholders  and 
officials.  After  showing  that  the  growth  of  the  transportation  sys- 
tem of  the  country  must  further  its  continued  economic  development, 
and  that  the  present  tendencies  of  public  regulation,  if  allowed  to 
go  on,  would  be  to  cripple  private  enterprise,  he  said :  "I  do  not 
believe  that  the  sentiment  of  a  majority  of  the  people  of  the  United 
States  is  favorable  to  governmental  ownership,  but  I  do  believe  that 
if  some  of  the  more  extreme  legislation  already  enacted  is  supple- 
mented along  the  lines  now  proposed,  the  ultimate  result  must  be 
to  break  down  the  system  of  private  ownership." 

Government  ownership  of  railroads,  long  regarded  as  the  dream 
of  the  impractical  radical,  is  rapidly  looming  into  view  as  an  im- 
pending change  far-reaching  and  fundamental  in  the  structure  of 
our  economic  life.  Government  ownership  of  railroads  is  the  inev- 
itable consequence  of  the  present  system  of  regulation  which  is 
developing  into  the  scheme  of  irresponsible  public  management  by 
boards  and  commissions  which  will  "practically  leave  little  to  the 
owners  of  the  property  but  the  privilege  of  providing  the  capital 
necessary  for  construction  and  operation,  and  liability  for  heavy 
damages  and  attorney's  fees  in  every  case  of  failure  to  maintain 
the  required  standard  of  service,  and  for  penalties  in  amounts  which 
might  easily  absorb  a  very  large  proportion  of  the  gross  earnings  of 
a  company  rendering  the  most  efficient  service  in  its  power." 

We  seriously  question  whether  public  ownership  would  not  be 
better  than  the  system  of  public  regulation  so  graphically  described 
by  President  Finley.  True,  it  would  seriously  impair  the  efficiency 
of  our  transportation  system.  It  would  also  make  the  railway  pol- 
icies of  the  country  a  matter  of  serious  controversy.  But,  with  its 
disadvantages,  it  would  be  an  improvement  on  the  present  system 
of  regulation. 

There  is,  however,  another  side  to  the  picture.  Under  govern- 
ment ownership,  the  stockholders  and  creditors  of  the  railways 
would  exchange  their  holdings  for  government  bonds,  and  they 
would  be  sufficiently  influential  to  protect  themselves  from  any 
serious  injustice  in  the  terms  of  exchange.  They  would  then  turn 
over  the  management  of  the  railroads  to  the  government  officials, 
freeing  their  long-endangered  capital  for  entrance  into  safer  lines 
of  employment  and  leaving  the  country  to  struggle  with  a  set  of 
"problems"  far  more  serious  and  difficult  than  even  the  tariflf  and 
currency  questions. 

Why  should  the  owners  of  American  railway  companies  resist 
the  trend  toward  government  ownership  ?  They  will  suffer  no  dam- 
age in  the  transfer.  The  courts  can  be  relied  on  to  protect  their 
rights.    They  will  be*freed  from  further  worry  and  annoyance.    To 


RAILWAY  regulation:  391 

them  at  least,  if  not  to  the  shipper,  the  change  will  come  like  a  cool 
and  refreshing  shower  at  the  close  of  a  hot  and  sultry  day.  We 
recommend  to  railway  owners  the  careful  consideration  of  this  mat- 
ter. We  would  even  go  so  far  as  to  suggest  that  they  become  active 
in  support  of  the  public-ownership  propaganda,  and  meanwhile  that 
they  refrain  from  further  investments  in  railway  development.  Even 
if  their  advocacy  of  the  strange  doctrines  of  socialism  does  not  suc- 
ceed, their  refusal  to  invest  further  in  a  business  which  they  are  not 
allowed  to  control  may  furnish  a  needed  object-lesson  to  the  advo- 
cates of  railway  regulation. 


197.     The  Economies  of  Government  Ownership'^^ 

BY  FRANK  PARSONS 

Public  ownership  aims  at  service  rather  than  profit.  It  there- 
fore not  only  tends  to  a  lower  rate  level  than  private  ownership, 
gravitating  to  the  greatest  service  without  deficit,  but  it  tends  to 
lower  that  level.  Thus  public  ownership  favors  low  rates  in  a  double 
way,  first,  by  tending  to  bring  rates  down  to  cost,  and  second,  by 
lowering  cost. 

Some  of  the  reasons  for  the  superior  economy  of  public  owner- 
ship are  as  follows : 

1.  The  public  plant  has  no  lobby  expenses  or  corruption  funds 
to  raise,  as  many  of  the  private  monopolies  have. 

2.  It  has  no  rebates  or  commissions  or  other  secret  conces- 
sions to  favored  customers  to  provide  for. 

3.  It  has  no  dividends  on  watered  stock  to  pay, 

4.  It  has  no  overgrown  salaries  or  monopolistic  profits  to  pro- 
vide for.  The  principal  salaries  are  likely  to  be  smaller  under  pub- 
lic ownership  and  the  wages  of  ordinary  labor  somewhat  higher  than 
under  private  ownership. 

5.  Litigation  expenses  and  lawyer's  fees  are  likely  to  be  less 
under  public  ownership  than  with  private  systems. 

6.  The  public  plant  generally  is  able  to  save  on  interest  charges. 
The  public  credit  is  better  than  even  that  of  very  strong  private 
companies,  the  government  being  able  to  borrow  often  at  3  per  cent 
or  less  when  a  private  company  has  to  pay  from  4  to  6  per  cent  in 
the  same  locality.  The  government  also  saves  on  insurance,  insur- 
ance simply  being  intended  to  diflFuse  loss,  the  government  acting 
as  its  own  insurer — diffusing  the  loss  without  paying  the  commis- 
sion or  agents'  fees. 

^'Adapted  from  Report  of  the  Industrial  Commission  on  Transportation, 
IX,  147  (1901). 


392  CURRENT  ECONOMIC  PROBLEMS 

7.  Public  ownership  gains  through  superior  co-ordination  of 
industry,  which  is  impossible  under  private  ownership  except  through 
incurring  the  dangers  of  a  concentration  of  wealth  and  power  in 
the  hands  of  a  few,  the  evils  of  which  would  be  likely  to  outweigh 
the  benefits  of  co-ordination. 

8.  The  public  also  gains  through  the  civic  interests  of  the  peo- 
ple, which  increases  and  facilitates  the  business.  The  people  patron- 
ize their  own  institutions  to  a  far  greater  extent  than  they  patronize 
private  institutions.  A  man  does  not  hesitate  to  increase  the  income 
of  a  public  plant ;  his  civic  pride  leads  him  to  favor  its  prosperity ; 
it  is  his  plant;  he  is  a  partner  in  the  concern;  but  the  majority  of 
men  do  not  enjoy  increasing  the  profits  of  a  private  monopoly. 

9.  In  the  next  place  the  public  plant  escapes  the  costs  and  bur- 
dens of  costly  strikes  and  lockouts. 

10.  Public  ownership  saves  the  cost  of  numerous  regulative 
commissions  and  investigations  into  the  secrets  of  private  monopoly. 
Everything  is  open  and  public,  and  there  is  no  necessity  of  those 
tremendous  investigations.  It  also  saves  in  the  cost  of  legislation, 
since  the  time  and  attention  of  our  legislators  are  very  largely  given 
to  these  great  private  monopolies,  making  laws  they  want  and  mak- 
ing laws  to  control  them. 

11.  The  superior  diffusion  of  wealth  and  elevation  of  labor 
resulting  from  a  normal  public  system  tend  to  diminish  the  extent 
and  the  cost  of  the  criminal  and  defective  and  unfortunate  classes ; 
as  in  New  Zealand,  where  they  have  practically  wiped  out  the  un- 
employed agitation  through  the  administration  of  public  utilities. 

12.  The  elimination  of  the  antagonism  between  the  owners  of 
vast  industries  and  the  public  carries  with  it  all  the  useless  activities 
and  wastes  of  conflict  which  result  from  that  antagonism. 

198.     The  Inexpediency  of  Government  Ownership^* 

BY  SAMUEL  O.  DUNN 

Do  the  railway  and  the  general  political  conditions  existing  here, 
and  the  experience  of  other  democratic  nations,  indicate  that  the 
adoption  of  government  ownership  of  railways  here  would  be,  on 
the  whole,  beneficial  to  the  public?  The  answer  to  this  question 
must  be  set  forth  here  in  summary  manner.  It  is  in  brief  as  fol- 
lows : 

I.  The  railways  of  the  United  States  are,  considering  all  per- 
tinent conditions,  as  economically  managed  as  any  in  the  world ;  and 

"Adapted  from  Government  Ownership  of  Railways,  37^37^-  Copyright 
by  D.  Appleton  &  Co.  (1913). 


RAILWAY  REGULATION  393 

it  is  probable  that  under  government  management  there  would  be  an 
increase  in  the  total  expense  incurred  in  rendering  railway  service. 

2.  Under  private  management,  the  development  of  the  railways 
of  the  country  has  gone  forward  at  a  rate  which,  until  recent  years, 
has  not  been  equaled  in  any  country.  The  capacity  of  the  railway 
trackage  and  equipment  provided  in  proportion  to  both  area  and 
population  is  not  surpassed  in  any  other  country ;  and  while  there 
are  some  shortages  of  facilities  for  handling  freight  traffic,  these 
are  not  peculiar  to  this  country.  Similar  shortages  occur  on  some 
of  the  leading  private  and  state  railways  of  the  world. 

3.  The  quality  of  the  freight  and  passenger  service  rendered 
here  is  in  most  respects  equal  or  superior  to  the  quality  of  that  ren- 
dered by  railways  in  other  countries  under  conditions  at  all  com- 
parable. 

4.  The  service  in  this  country  is,  however,  very  deficient  as 
compared  with  that  of  most  other  countries  in  respect  to  the  ex- 
tremely important  element  of  safety.  But  the  evidence  indicates 
that  this  is  due  rather  to  local  conditions  than  to  private  manage- 
ment, and  that  the  situation  in  this  regard  probably  would  not  be 
improved  under  government  management. 

5.  Passenger  rates  in  this  country  probably  are  no  higher  than 
in  most  countries  for  similar  services ;  but  the  average  rate  per  pas- 
senger per  mile  is  much  higher  than  it  is  on  most  state  railways ; 
and  state  railways  usually  make  lower  passenger  rates  than  private 
railways. 

6.  The  freight  rates  of  the  railways  of  this  country  have  been, 
and  are  yet,  based  largely  on  what  the  traffic  will  bear.  In  other 
countries  under  public  management,  the  domestic  freight  rates  are 
usually  based  rigidly  on  distance.  The  rate-making  policy  followed 
in  this  country  is  well  adapted  to  promoting  the  fullest  development 
of  industry  and  commerce,  but  it  has  led  to  many  unfair  and  ex- 
tremely harmful  discriminations.  Public  regulation  has  greatly  re- 
duced the  number  of  these,  unfair  discriminations,  and  doubtless 
can  reduce  it  still  further;  but,  in  the  nature  of  things,  unfair  dis- 
crimination seems  more  likely  to  occur  under  private  management 
than  under  state  management. 

7.  The  average  freight  rate  per  ton  mile  of  the  railways  of  this 
country  is  the  lowest  in  the  world,  excepting,  apparently,  that  of  the 
state  railways  of  Japan  ;  and  relatively  to  the  conditions  under  which 
they  are  charged  freight  rates  here  are  probably  the  lowest  in  the 
world.  Private  railways  generally  tend  to  make  lower  freight  rates 
than  state  railways ;  and  low  freight. rates  are  of  more  benefit  to  the 
public  than  low  passenger  rates. 


394  CURRENT  ECONOMIC  PROBLEMS 

8.  While  in  many  countries  state  railways  cause  financial  losses 
to  the  public,  in  the  United  States  the  public  derives  large  sums  from 
the  railways  in  the  form  of  taxes.  Furthermore,  the  amount  of  taxes 
collected  from  them  is  rapidly  increasing. 

9.  The  condition  of  the  labor  employed  on  the  railways  of  this 
country  relatively  is  as  good  as  that  of  the  labor  employed  on  the 
railways  of  any  other  country ;  and  it  could  not  be  substantially  im- 
proved without  imposing  an  additional  burden  of  rates  on  travelers 
or  shippers,  or  both,  or  an  additional  burden  of  taxes  on  the  general 
public.  In  either  case  the  greater  part  of  the  added  burden  would 
fall  on  the  middle  and  working  classes. 

10.  In  view  of  the  experience  of  many  other  countries  with  state 
management  of  railways,  and  of  the  conditions  existing  in  our  own 
country,  it  would  seem  that  state  management  here  would  have  a 
tendency  to  corrupt  rather  than  to  purify  politics. 

Clearly  the  preponderance  of  the  evidence  does  not  indicate  that, 
under  existing  conditions  at  least,  the  adoption  of  government 
ownership  in  the  United  States  would  be  beneficial  to  the  public. 


VIII 
THE    PROBLEM   OF    CAPITALISTIC    MONOPOLY 

Corners,  rings,  patents  of  monopoly,  pools,  cartels,  trusts,  holding  com- 
panies, "Gary  dinners,"  interlocking  directorates,  "communities  of  interest," 
"gentlemen's  agreements,"  closed  shops,  codes  of  "professional  ethics" — such 
terms  serve  to  emphasize  the  venerable  age,  the  cosmopolitan  character,  and 
the  motley  form  of  the  monopoly  problem.  Tt  is  as  old  as  industrial  society 
and  as  new  as  the  latest  court  decision.  Other  ages  have  met  this  "hydra- 
headed  monster";  but  they  have  possessed  neither  a  collection  as  varied  as 
ours  nor  such  a  prize  specimen  as  our  "capitalistic  monopoly."  This  for  us  is 
the  real  monopoly.  The  "corner"  is  an  aspect  of  speculation.  Copyrights  and 
patents  exist  by  grace  of  the  state.  The  "natural"  monopolies  of  such  things 
as  gas,  water,  and  telephone  service,  and  even  of  forest  lands  and  iron  de- 
posits, present  much  the  same  aspects  and  give  rise  to  much  the  same  prob- 
lems as  the  railroads.  But  it  is  otherwise  with  "capitalistic  monopoly,"  a 
phenomenon  of  Modern  Industrialism,  an  offshoot  of  the  machine  system. 

To  act  with  wisdom  we  must  first  determine  whether  so  "unnatural"  and 
so  obvious  a  thing  is  "inevitable."  To  do  this  we  must  carefully  consider  the 
"conditions  of  monopolization."  But  the  institution  is  new;  its  life  history 
does  not  as  yet  stand  revealed  in  its  entirety;  our  experience  is  limited;  and 
our  view  is  too  close  for  perspective.  Our  answer  is,  therefore,  hesitating. 
However,  there  seem  to  be  three  "groups  of  forces"  which  have  conspired  to 
produce  this  phenomenon.  First,  the  machine  process  must  be  charged  with 
partial  responsibility.  It  has  made  large-scale  production  possible;  it  has 
caused  industries  of  tremendous  size  to  operate  in  a  "stage  of  increasing  re- 
turns"; it  has  developed  in  the  corporation  an  impersonal  form  of  business 
organization;  it  has  concentrated  in  the  hands  of  the  pecuniarily  efficient  few 
huge  aggregates  of  wealth;  and  in  many  lines  it  has  reduced  the  number  re- 
sponsible for  production  to  a  small  handful  who  can  know  each  other  per- 
sonally and  among  whom  a  group  spirit  can  develop.  Even  if  monopoly  and 
large-scale  production  are  distinct  economic  phenomena,  the  problem  of  "cap- 
itaHstic  monopoly"  arises  only  where  wealth  is  concentrated.  Second,  the  high 
rate  of  development  in  the  industrial  system  cannot  completely  escape  re- 
sponsibility. New  technique  is  often  forced  into  use  before  old  technique  has 
paid  for  itself.  The  development  of  demand  in  our  constantly  expanding 
market  has  had  the  most  vacillating  course.  Under  competition  and  inde- 
pendent action  of  rival  producers  the  market  has  experienced  alternate  dearth 
and  glut.  These  uncertainties,  seriously  threatening  profits,  and  even  sol- 
vency, have  been  greatly  increased  by  violent  and  unpredictable  rhythm  of 
the  business  c>-cle.  Competing  producers  have  thus  been  compelled  "to  get 
together."  Third,  "artificial"  conditions  have  contributed  their  influence  to 
the  transformation.  The  "concentration  of  cash"  and  the  "restriction  of 
credit,"  the  fickleness  and  spec'al  favors  of  the  tariff,  and  the  clever  "manip- 
ulation" of  railway  rates  have  contributed  to  the  general  result.  Were  we 
able  properly  to  impute  responsibility  to  these  various  "forces,"  we  should 
perhaps  know  what  to  do.  Were  responsibility  entirely  upon  those  last  men- 
tioned, the  monopoly  problem  would  resolve  itself  into  such  problems  as  the 
money  trust,  the  tariff,  and  railroad  rates.  Were  sole  responsibility  upon  the 
second,  our  question  would  become  a  mere  aspect  of  the  problem  of  the 
economic  c>cle.  Only  the  first  directly  promises  an  independent  problem.  Yet, 
were  the  causes  wholly  artificial,  a  removal  of  them  would  not  solve  the 
problem ;  their  influence  has  been  too  organic  and  too  wide-reaching  for  that. 

395 


396  CURRENT  ECONOMIC  PROBLEMS 

There  is  a  monopoly  problem,  involving  these  various  factors,  yet  far  more 
comprehensive  than  a  mere  aggregation  of  them. 

Public  attention  seems  to  be  directed  very  largely  to  some  few  minor 
aspects  of  this  larger  problem.  It  concerns  itself  with  monopoly  price,  the 
use  of  "unfair  competitive  methods,"  and  the  "power"  of  big  business  in 
politics.  Only  vaguely  is  it  seen  that  the  institution  of  monopoly  is  intimately 
associated  with  the  stratification  of  society,  the  concentration  of  wealth,  the 
distribution  of  income,  and  other  aspects  of  social  development.  Very  little 
attention  is  given  to  the  institutional  aspects  of  monopoly :  its  influence  in  the 
determination  of  the  kind  of  a  society  we  would  like  to  realize;  its  influence 
upon  the  ethics  underlying  distribution ;  the  effect  it  is  likely  to  have  upon  the 
attempt  of  class-  and  group-conscious  labor  to  incorporate  their  interests 
into  the  institutional  system;  its  effect  upon  the  distribution  of  opportunity, 
and  similar  questions.  But  all  these  are  important  aspects  of  the  larger 
problem. 

In  our  partial  attempt  to  control  monopoly  we  have  used  very  largely  the 
agencies  of  the  state.  The  law  has  given  the  form  of  monopoly  organization  a 
merry  chase.  Perhaps  "the  complete  merger,"  now  the  popular  style,  is  a 
permanent  garb  rather  than  a  temporary  disguise.  In  that  event,  our  atten- 
tions may  have  been  justified  in  putting  the  problem  in  terms  in  which  it  can 
be  reached.  The  application  of  the  Sherman  law  has  doubtless  given  us  the 
beginning  of  a  "standard  of  reasonableness"  in  terms  of  which  the  conduct  of 
large  business  units  can  be  judged,  despite  the  obvious  fact  that  trusts  have 
waxed  fat  on  the  invigorating  tonic  of  dissolution.  By  more  sharply  defining 
"unfair  competition,"  the  Clayton  bill  should  raise  the  "plane"  of  industrial 
rivalry.  The  promises  of  the  Trade  Commission  are  vague  and  indefinite  as 
yet,  though  they  bristle  with  possibilities. 

But  as  yet  the  real  problem  of  monopoly  has  not  been  solved.  What 
shall  we  do  about  it  all?  It  is  possible  that  monopoly  is  a  mere  "passing 
phase"  of  a  larger  industrial  movement,  born  of  competition,  and  with  a  short 
span  of  life.  It  may  be  that  legislation  and  administration  can  achieve  a 
"restored"  regime  of  unimpeded  competition,  even  if  such  a  regime  never 
existed.  Or  it  may  be  that  monopoly  is  "inevitable,"  and  that  all  we  can  do 
is  to  regulate  it  before  it  regulates  us. 

What  we  most  need  is  a  far-sighted  vision  and  patience  carefully  to  cal- 
•culate  anticipated  gains  and  losses.  That  "competition  is  wasteful"  does  not 
make  out  a  case  for  regulated  monopoly.  The  costs  of  regulation  must  be 
balanced  against  the  costs  of  waste.  But  regulation  once  started  is  likely 
to  be  carried  to  unforeseen  and  perhaps  unwarranted  lengths,  both  in  the  mi- 
nuteness of  its  control  and  in  the  number  of  industries  affected.  These  costs 
incident  to  this  extension  must  find  a  place  in  our  calculation.  Our  judgment, 
too,  must  not  be  too  immediate.  Our  capacity  for  development  may  be  quite 
differently  utilized  under  regimes  of  monopoly  and  competition.  We  know, 
for  example,  that  an  incentive  to  monopoly  has  been  a  desire  to  escape  the 
rigors  of  changing  technique.  Is  it  not,  therefore,  more  than  possible  that 
monopolistic  industries  will  introduce  technical  improvements  much  less  rap- 
idly than  competitive  industries?  Is  it  not  further  possible  that  new  tech- 
nique may  not  succeed  in  getting  itself  invented?  The  question  must  be 
settled  by  a  long-time  calculation  of  relative  gains  and  sacrifices.  But  this  is 
not  the  whole,  but  only  the  economic  aspect  of  the  larger  problem  of  monopoly. 
It  must  be  subordinated  to  the  more  general  question,  Are  the  general  social 
tendencies  inherent  in  regulated  monopoly  more  compatible  with  our  realiz- 
able social  ideals  than  those  implicit  in  a  system  of  competition  ? 

This  is  the  beginning  of  the  problem.  If  our  decision  favors  a  restora- 
tion of  a  competitive  society,  we  are  face  to  face  with  the  problem  of  ways  and 
means.  If  we  decide  in  favor  of  regulated  monopoly,  we  must  determine, 
perhaps  as  we  go,  the  extent  to  which  monopoly  shall  be  recognized,  the 
means  and  extent  of  regulation,  and  the  "good  of  it  all."  The  problem  awaits 
a  progressive  solution. 


CAPITALISTIC  MONOPOLY  397 

A.     IS  MONOPOLY  INEVITABLE? 

igg.     The  Perennial  Problem  of  Monopoly 

a)     An  Early  Corner  in  Grain^ 

And  Joseph  went  out  from  the  presence  of  Pharaoh,  and  went 
throughout  all  the  land  of  Egypt.  And  in  the  seven  plenteous  years 
the  earth  brought  forth  by  handfuls.  And  he  gathered  up  all  the 
food  of  the  seven  years  which  were  in  the  land  of  Egypt,  and  laid 
up  the  food  in  the  cities :  the  food  of  the  field,  which  was  round 
about  every  city,  laid  he  up  in  the  same.  And  Joseph  laid  up  grain 
as  the  sand  of  the  sea,  very  much,  until  he  left  off  numbering;  for 
it  was  without  number. 

And  the  seven  years  of  plenty,  that  was  in  the  land  of  Egypt, 
came  to  an  end.  And  the  seven  years  of  famine  began  to  come, 
according  as  Joseph  had  said :  and  there  was  famine  in  all  lands ; 
but  in  all  the  land  of  Egypt  there  was  bread.  And  when  all  the  land 
of  Egypt  was  famished,  the  people  cried  to  Pharaoh  for  bread :  and 
Pharaoh  said  unto  all  the  Egyptians,  Go  unto  Joseph :  what  he  saith 
unto  you,  do.  And  the  famine  was  over  all  the  face  of  the  earth: 
and  Joseph  opened  all  the  storehouses,  and  sold  unto  the  Egyptians ; 
and  the  famine  was  sore  in  the  land  of  Egypt.  And  all  countries 
came  unto  Egypt  to  Joseph  to  buy  grain,  because  the  famine  was  sore 
in  all  the  earth. 

And  there  was  no  bread  in  all  the  land ;  for  the  famine  was  very 
sore,  so  that  the  land  of  Egypt  and  the  land  of  Canaan  fainted  by 
reason  of  the  famine.  And  Joseph  gathered  up  all  the  money  that 
was  found  in  the  land  of  Egypt,  and  in  the  land  of  Canaan,  for  the 
grain  which  they  bought;  and  Joseph  brought  the  money  into 
Pharaoh's  house.  And  when  the  money  was  all  spent  in  the  land 
of  Egypt,  and  in  the  land  of  Canaan,  all  the  Egyptians  came  unto 
Joseph,  and  said.  Give  us  bread :  for  why  should  we  die  in  thy 
presence?  for  our  .money  faileth.  And  Joseph  said.  Give  your 
cattle;  and  I  will  give  you  for  your  cattle,  if  money  fail.  And  they 
brought  their  cattle  unto  Joseph;  and  Joseph  gave  them  bread  in 
exchange  for  the  horses,  and  for  the  flocks,  and  for  the  herds,  and 
for  the  asses :  and  he  fed  them  with  bread  in  exchange  for  all  their 
cattle  for  that  year.  And  when  the  year  was  ended  they  came  unto 
him  the  second  year,  and  said  unto  him,  We  will  not  hide  from  my 
lord,  how  that  our  money  is  all  spent ;  and  the  herds  of  cattle  are 
my  lord's  ;  there  is  naught  left  in  the  sight  of  my  lord,  but  our  bodies 
and  our  lands :  wherefore  should  we  die  before  thine  eyes,  both  we 

*From  Gen.  41:46-49,  53-57;  47.13-22  (800  b.c). 


398  CURRENT  ECONOMIC  PROBLEMS 

and  our  land  ?  buy  us  and  our  land  for  bread,  and  we  and  our  land 
will  be  servants  unto  Pharaoh :  and  give  us  seed,  that  we  may  live, 
and  not  die,  and  that  the  land  be  not  desolate. 

So  Joseph  bought  all  the  land  of  Egypt  for  Pharaoh;  for  the 
Egyptians  sold  every  man  his  field,  because  the  famine  was  sore 
upon  them :  and  the  land  became  Pharaoh's.  And  as  for  the  people 
he  removed  them  to  the  cities  from  one  end  of  the  border  of  Egypt 
even  to  the  other  encl  thereof.  Only  the  land  of  the  priests  bought 
he  not. 

h)     A  Vindication  of  Philosophy^ 

BY  ARISTOTLE 

It  would  be  well  also  to  collect  the  scattered  stories  of  the  ways 
in  which  individuals  have  succeeded  in  amassing  a  fortune;  for 
all  this  is  useful  to  persons  who  value  the  art  of  making  money. 
There  is  the  anecdote  of  Thales  the  Milesian  and  his  financial  de- 
vice, which  involves  a  principle  of  universal  application,  but  is  at- 
tributed to  him  on  account  of  his  reputation  for  wisdom.  He  was 
reproached  for  his  poverty,  which  was  supposed  to  show  that 
philosophy  was  of  no  use.  According  to  the  story,  he  knew  by  his 
skill  in  the  stars  while  it  was  yet  winter,  that  there  would  be  a  great 
harvest  of  olives  in  the  coming  year;  so,  having  a  little  money,  he 
gave  deposits  for  the  use  of  all  the  olive  presses  in  Chios  and 
Miletus,  which  he  hired  at  a  low  price  because  no  one  bid  against 
him.  When  the  harvest-time  came,  and  many  wanted  them  all  at 
once  and  of  a  sudden,  he  let  them  out  at  any  rate  which  he  pleased, 
and  made  a  quantity  of  money.  Thus  he  showed  the  world  that 
philosophers  can  easily  be  rich  if  they  like,  but  that  their  ambition 
is  of  another  sort.  He  is  supposed  to  have  given  a  striking  proof  of 
his  wisdom,  but,  as  I  was  saying,  his  device  for  getting  money  is  of 
universal  application,  and  is  nothing  but  the  creation  of  a  monopoly. 
It  is  an  art  often  practiced  by  cities  when  they  aje  in  want  of  money ; 
they  make  a  monopoly  of  provisions. 

c)     An  Barly  Use  of  Class  Price^ 

BY  JOHN  GOWER 

Wouldst  thou  have  closer  knowledge  of  Trick  the  Taverner? 
Thou  shalt  know  him  by  his  piment,  his  claree,  and  his  new  ypocras, 
that  help  to  fatten  his  purse  when  our  city  dames  come  tripping  at 

'From  The  Politics,  I,  ii :  7-10  (357  b.c.)  ;  translated  by  B,  Jowett. 
'Adapted  from  Mirour  de  I'Omme,  \\.  421  ii.  (1376-1379).    Translation  in 
Coulton,  A  Mediaeval  Garner,  577-578. 


CAPITAUSTIC  MONOPOLY  399 

dawn  to  his  tavern  as  readily  as  to  minister  or  to  market.  Then 
doth  Trick  make  good  profit;  for  be  sure  that  they  will  try  every 
vintage  in  turn,  so  it  be  not  mere  vinegar.  Then  will  Trick  per- 
suade them  that  they  may  have  Vernage,  Greek  wine,  and  Malvesie 
if  they  will  but  wait;  the  better  to  cajole  them  of  their  money,  he 
will  tell  them  of  divers  sorts — wines  of  Crete,  Ribole,  and  Rou- 
mania,  of  Provence,  and  Monterosso ;  so  he  boasteth  to  sell  Riviera 
and  Muscadel  from  his  cellar,  but  he  hath  not  a  third  part  of  all 
these ;  he  nameth  them  but  for  fashion's  sake,  that  he  may  the  bet- 
ter entice  these  dames  to  drink.  Trust  me,  he  will  draw  them  ten 
sorts  of  wine  from  one  barrel,  when  once  he  can  get  them  seated 
in  his  chairs.  Better  than  any  master  of  magic  Trick  knoweth 
all  the  arts  of  the  wine-trade ;  all  its  subtleties  and  its  guile.  He  is 
crafty  to  counterfeit  Rhine  wine  with  the  French  vintage ;  nay,  even 
such  as  never  grew  but  by  Thames  shore,  even  such  will  he  brisk  up 
and  disguise,  and  baptize  it  for  good  Rhenish  in  the  pitcher:  so 
quantily  can  he  dissemble,  that  no  man  is  so  cautious  but  Trick  will 
trick  him  in  the  end. 

d)     In  the  Merrie  England  of  Queen  Bess* 

BY  DAVID  HUME 

The  active  reign  of  Elizabeth  had  enabled  many  persons  to  dis- 
tinguish themselves  in  civil  or  military  employments ;  and  the  queen, 
who  was  not  able,  from  her  revenue,  to  give  them  any  rewards  pro- 
portional to  their  services,  made  extreme  use  of  an  expedient  em- 
ployed by  her  predecessor.  She  granted  her  servants  and  cour- 
tiers patents  for  monopolies,  and  these  patents  they  sold  to  others, 
who  were  thereby  enabled  to  raise  commodities  to  what  price  they 
pleased,  and  who  put  invincible  restraints  upon  all  commerce,  in- 
dustry, and  emulation  in  the  arts.  It  is  astonishing  to  consider  the 
number  and  importance  of  those  commodities  which  were  thus  as- 
signed over  to  patentees.  Currants,  salt,  iron,  powder,  cards,  calf- 
skins, fells,  pouldavies,  ox  shin-bones,  train-oil,  lists  of  cloth,  pot- 
ashes, aniseeds,  vinegar,  sea-coals,  steel,  aqua-vitae,  brushes,  pots, 
bottles,  saltpetre,  lead,  accidences,  oil,  calamine-stone,  oil  of  blubber, 
glasses,  paper,  starch,  tin,  sulphur,  new  drapery,  pilchards ;  trans- 
portation of  iron  ordnance,  of  beer,  of  leather ;  importation  of  Span- 
ish wool,  of  Irish  yarn.  These  are  but  a  part  of  the  commodities 
which  had  been  appropriated  by  monopolists.  When  this  list  was 
read  in  the  House,  a  member  cried,  "Is  not  bread  in  the  number?" 
"Bread!"  said  everyone,  with  astonishment.     "Yes,  I  assure  you," 

*  Adapted  from  The  History  of  England,  IV,  chap,  xliv  (i7S9). 


400  CURRENT  ECONOMIC  PROBLEMS 

replied  he,  "if  affairs  go  on  at  this  rate,  we  shall  have  bread  reduced 
to  a  monopoly  before  next  Parliament."  These  monopolists  were  so 
exorbitant  in  their  demands  that  in  some  places  they  raised  the  price 
of  salt  from  sixteen  pence  a  bushel  to  fourteen  or  fifteen  shillings. 
Such  high  profits  naturally  begat  intruders  upon  their  commerce ; 
and,  in  order  to  secure  themselves  against  encroachments,  the  pat- 
entees were  armed  with  high  and  arbitrary  powers  from  the  coun- 
cil, by  which  they  were  enabled  to  exact  money  from  such  as  they 
thought  proper  to  accuse  of  interfering  with  their  patent. 

200.     The  Perennial  Protest  against  Monopoly 

a)  A  Proverb  about  Corners'^ 

The  liberal  soul  shall  be  made  fat ; 
And  he  that  watereth  shall  be  watered  also  himself. 
He  that  withholdeth  grain,  the  people  shall  curse  him ; 
But  blessings  shall  be  upon  the  head  of  him  that  selleth  it. 

b)  The  Bthics  of  Monopoly^ 

BY  MARTIN  LUTHER 

There  are  some  who  buy  up  altogether  the  goods  or  wares  of  a 
certain  kind  in  a  city  or  country,  so  that  they  alone  have  such  goods 
in  their  power,  and  then  fix  prices,  raise  and  sell  as  dear  as  they 
will  or  can.  The  rule  is  false  and  unchristian  that  anyone  sell  his 
goods  as  dear  as  he  will  or  can ;  more  abominable  still  is  it  that  any- 
one should  buy  up  the  goods  with  this  intent.  Which  same,  more- 
over, imperial  and  common  law  forbids  and  calls  monopoly ;  that  is, 
selfish  purchases  which  are  not  to  be  suffered  in  the  land  and  the 
city,  and  princes  and  rulers  should  check  and  punish  it  if  they  wish 
to  fulfil  their  duty.  For  such  merchants  act  just  as  if  the  creatures 
and  goods  of  God  were  created  and  given  for  them  alone,  and  as 
though  they  might  take  them  from  others  and  dispose  of  them  at 
their  fancy. 

c)  The  Pests  of  Monopoly' 

BY  SIR  JOHN   CUIvPDPPER 

These,  like  the  frogs  of  Egypt,  have  gotten  possession  of  our 
dwellings,  and  we  have  scarcely  a  room  free  from  them.  They  sip 
in  our  cup ;  they  dip  in  our  dish ;  they  sit  by  our  fire ;  we  find  them 

•Prov.  II :  25-26  (350  B.C.). 

"Adapted  from  the  address  on  "Trade  and  Usury,"  printed  in  the  Open 
Court,  XI,  27;  translated  by  W.  H.  Carruth  (1524). 

^Quoted  in  Hirst,  Monopolies,  Trusts,  and  Kartells,  20. 


CAPITALISTIC  MONOPOLY  401 

in  the  dye-vat,  washing-bowl,  and  powdering-tub.  They  share  with 
the  butler  in  his  box ;  they  have  marked  and  sealed  us  from  head  to 
foot ;  they  will  not  bate  us  a  pin. 

d)     The  Inexpediency  of  Moflopoly^ 

BY  ADAM  SMITH 

Though  some  exclusive  privileges  arise  from  nature,  they  are 
generally  the  creatures  of  the  civil  law.  Such  are  monopolies  and 
all  privileges  of  corporations,  which,  though  they  might  once  be 
conducive  to  the  interest  of  the  country,  are  now  prejudicial  to  it. 
The  riches  of  the  country  consist  in  the  plenty  and  cheapness  of  pro- 
visions, but  their  effect  is  to  make  everything  dear.  When  a  num- 
ber of  butchers  have  the  sole  privilege  of  selling  meat,  they  may 
agree  to  make  the  price  what  they  please,  and  we  must  buy  from 
them  whether  it  be  good  or  bad.  Even  this  privilege  is  not  of  ad- 
vantage to  the  butchers  themselves,  because  the  other  trades  are  also 
formed  into  corporations,  and  if  they  sell  beef  dear  they  must  buy 
bread  dear.  But  the  great  loss  is  to  the  public,  to  whom  all  things 
are  rendered  less  comeatable,  and  all  sorts  of  work  worse  done; 
towns  are  not  well  inhabited,  and  the  suburbs  are  increased. 

e)     Monopoly  Indefensible^ 

A  private  monopoly  is  indefensible  and  intolerable.  We  there- 
fore favor  the  vigorous  enforcement  of  the  criminal  as  well  as  the 
civil  law  against  trusts  and  trust  officials  and  demand  the  enactment 
of  such  additional  legislation  as  may  be  necessary  to  make  it  impos- 
sible for  a  private  monopoly  to  exist  in  the  United  States. 

201.    Monopoly,  the  Result  of  Natural  Growth" 

BY  GEORGE  GUNTON 

Many  people  talk  about  trusts  as  if  they  were  a  sudden  creation, 
the  product  of  a  conspiracy  against  the  public.  Nothing  could  be 
farther  from  the  truth  than  this  view.     The  history  of  trusts  is 

'Adapted  from  Lectures  on  Justice,  Police,  Revenue  and  Arms,  129-130; 
edited  by  Edwin  Cannan  (1763). 

•From  the  national  platform  of  the  Democratic  party,  adopted  at  Balti- 
more, July  3.  1912. 

^'Adapted  from  Trusts  and  the  Public,  32-34-  Copyright  by  D.  Appleton 
&  Co.  (1899). 


402  CURRENT  ECONOMIC  PROBLEMS 

simply  the  history  of  the  continuous  and  almost  imperceptible  tend- 
ency in  progressive  society  toward  a  greater  centralization  of  cap- 
ital which  the  most  highly  developed  labor-saving  methods  of  pro- 
duction make  necessary.  The  impeachment  of  trusts  as  economic 
institutiogs  is  therefore  the  impeachment  of  the  concentration  of 
capital,  without  which,  it  is  needless  to  say,  our  great  railroad,  tele- 
graph, and  factory  systems  would  have  been  impossible.  Very  few 
of  the  industries  which  use  the  most  approved  methods  and  have 
contributed  most  to  cheapening  the  multitude  of  products  can  now 
be  conducted  with  a  capital  of  less  than  a  million  dollars;  many  of 
them  require  tens  and  even  hundreds  of  millions.  A  hundred  or 
even  fifty  years  ago,  a  millionaire  might  have  been  regarded  with 
as  much  apprehension  as  is  a  hundred-millionaire  today ;  indeed,  he 
would  have  sustained  about  the  same  relation  to  the  productive 
needs  and  methods  of  the  community.  The  truth  is  that  in  this 
case,  as  in  the  growth  of  all  social  institutions,  the  new  form  came 
because  it  was  necessary.  The  small  English  water-wheel  factory 
on  the  river  bank,  in  the  eighteenth  century,  came  because  the  iso- 
lated hand-loom  and  spinning-wheel  did  not  permit  the  utilization  of 
the  most  economic  methods  after  the  spinning- jenny  and  spinning- 
frame  were  invented.  The  steam-driven  factory  in  thickly  popu- 
lated centers  came  in  the  first  quarter  of  the  nineteenth  century 
because  the  water-wheel  shops  were  incapable  of  employing  the  best 
methods  after  the  invention  of  steam  and  the  power-loom  had  been 
completed.  If  these  had  not  been  capable  of  lessening  the  cost  of 
production  and  so  rendering  a  general  benefit  to  the  community, 
they  could  not  have  succeeded,  as  there  would  have  been  no  demand 
for  their  products.  So,  again,  by  the  middle  of  the  century,  when 
machinery  had  been  still  further  improved,  partnership  organization 
of  industry  became  necessar}'  because  single  individuals  were  not 
rich  enough  to  furnish  plants  sufficiently  large  to  employ  profitably 
the  most  improved  methods. 

With  the  cheapening  of  products  and  the  increased  consumption 
which  followed  the  use  of  these  successive  improvements,  and  the 
consequent  social  advance  of  the  community,  a  revolution  in  the 
methods  of  distribution  and  international  communication  became 
necessary.  Inventions  multiplied,  which  so  enlarged  the  industrial 
world  as  to  render  corporations  necessary  in  order  to  obtain  the 
best  economic  results.  Modern  trusts  are  but  a  single  step  farther 
in  the  same  direction.  They  are  simply  the  organization  of  corpor- 
ations in  the  same  way  that  corporations  were  the  organization  of 
individual  capitalists. 


CAPITALISTIC  MONOPOLY  403 

Trusts,  instead  of  being  sudden  monopolistic  creations  that  have 
been  sprung  on  the  community  by  a  few  designing  conspirators,  are 
but  the  last  link  in  an  industrial  chain  more  than  a  century  long; 
they  are  no  more  revolutionary  than  any  one  of  the  previous  links, 
and  less  so  than  some  of  the  earlier  ones.  Each  one  of  these  links 
in  the  great  chain  of  industrial  evolution  came  and  stayed  only  be- 
cause it  was  more  profitable  than  its  predecessors  to  those  who  em- 
ployed it,  lessened  the  cost  of  production,  and  served  the  community 
more  cheaply.  Had  it  not  done  this,  it  could  «ot  have  sustained 
itself  in  competition  with  the  old  methods. 

202.     Monopoly,  the  Result  of  Artificial  Conditions" 

BY  WCX)DROW  WILSON 

Gentlemen  say,  they  have  been  saying  for  a  long  time,  that  trusts 
are  inevitable.  They  say  that  the  particular  kind  of  combinations 
that  are  now  controlling  our  economic  development  came  into  exist- 
ence naturally  and  were  inevitable;  and  that,  therefore,  we  have  to 
accept  them  as  unavoidable  and  administer  our  development  through 
them.  They  take  the  analogy  of  the  railways.  The  railways  were 
clearly  inevitable  if  we  were  to  have  transportation,  but  railways 
after  they  are  once  built  stay  put.  You  can't  transfer  a  railroad  at 
convenience ;  and  you  can't  shut  up  one  part  of  it  and  work  another 
part.  It  is  in  the  nature  of  what  economists,  those  tedious  persons, 
call  natural  monopolies;  simply  because  the  circumstances  of  their 
use  are  so  stiflf  that  you  can't  alter  them, 

I  admit  the  popularity  of  the  theory  that  the  trusts  have  come 
about  through  the  natural  development  of  business  conditions  in 
the  United  States,  and  that  it  is  a  mistake  to  try  to  oppose  the  pro- 
cesses by  which  they  have  been  built  up,  because  those  processes 
belong  to  the  very  nature  of  business  in  our  time,  and  that  therefore 
the  only  thing  we  can  do  is  to  accept  them  as  inevitable  arrange- 
ments and  make  the  best  out  of  it  that  we  can  by  regulation. 

I  answer,  nevertheless,  that  this  attitude  rests  upon  a  confusion 
of  thought.  Big  business  is  no  doubt  to  a  large  extent  necessary 
and  natural.  The  development  of  business  is  inevitable,  and,  let 
me  add,  is  probably  desirable.  But  that  is  a  very  diflferent  matter 
from  the  development  of  trusts,  because  the  trusts  have  not  grown. 
They  have  been  artificially  created ;  they  have  been  put  together, 
not  by  natural  processes,  but  by  the  will,  the  deliberate  planning 
will,  of  men  who  were  more  powerful  than  their  neighbors  in  the 

^^Adapted  from  The  New  Freedom,  163-169.  Copyright  by  Doubleday, 
Page  &  Co.  (1912). 


404  CURRENT  ECONOMIC  PROBLEMS 

business  world,  and  who  wished  to  make  their  power  secure  against 
competition.  The  trusts  do  not  belong  to  the  period  of  infant  in- 
dustries. They  are  not  the  products  of  the  time,  that  old  laborious 
time,  when  the  great  continent  we  live  on  was  undeveloped,  the 
young  nation  struggling  to  find  itself  and  get  upon  its  feet  amidst 
older  and  more  experienced  competitors.  They  belong  to  a  very 
recent  and  very  sophisticated  age,  when  men  knew  what  they  wanted 
and  knew  how  to  get  it  by  the  favor  of  the  government. 

Did  you  ever  look  into  the  way  a  trust  was  made?  It  is  very 
natural,  in  one  sense,  in  the  same  sense  in  which  human  greed  is 
natural.  If  I  haven't  efficiency  enough  to  beat  my  rivals,  then  the 
thing  I  am  inclined  to  do  is  to  get  together  with  my  rivals  and  say : 
"Don't  let's  cut  each  other's  throats;  let's  combine  and  determine 
prices  for  ourselves ;  determine  the  output,  and  thereby  determine 
the  prices ;  and  dominate  and  control  the  market."  That  is  very 
natural;  That  has  been  done  ever  since  f  reebooting  was  established. 
That  has  been  done  ever  since  power  was  used  to  establish  control. 
The  reason  that  the  masters  of  combination  have  sought  to  shut 
out  competition  is  that  the  basis  of  control  under  competition  is 
brains  and  efficiency.  I  admit  that  any  large  corporation  built  up 
by  the  legitimate  processes  of  business,  by  economy,  by  efficiency, 
is  natural;  and  I  am  not  afraid  of  it,  no  matter  how  big  it  grows. 
It  can  stay  big  only  by  doing  its  work  more  thoroughly  than  any- 
body else.  And  there  is  a  pK>int  of  bigness  where  you  pass  the  limit 
of  efficiency  and  get  into  the  region  of  clumsiness  and  unwieldiness. 
You  can  make  your  combine  so  extensive  that  you  can't  digest  it 
into  a  single  system ;  you  can  get  so  many  parts  that  you  can't  as- 
semble them  as  you  would  an  effective  piece  of  machinery.  The 
point  of  efficiency  is  overstepped  in  the  natural  process  of  develop- 
ment oftentimes,  and  it  has  been  overstepped  many  times  in  the 
artificial  and  deliberate  formation  of  trusts. 

A  trust  is  formed  in  this  way :  a  few  gentlemen  "promote"  it — 
that  is  to  say,  they  get  it  up,  being  given  enormous  fees  for  their 
kindness,  which  fees  are  loaded  on  to  the  undertaking  in  the  form 
of  securities  of  one  kind  or  another.  The  argument  of  the  pro- 
moters is,  not  that  every  one  who  comes  into  the  combination  can 
carry  on  his  business  more  efficiently  than  he  did  before;  the  argu- 
ment is :  we  will  assign  to  you  as  your  share  in  the  pool  twice,  three 
times,  four  times,  or  five  times  what  you  could  have  sold  your  bus- 
iness for  to  an  individual  competitor  who  would  have  to  run  it  on 
an  economic  and  competitive  basis.  We  can  afford  to  buy  it  at 
such  a  figure  because  we  are  shutting  out  competition. 


CAPITAUSTIC  MONOPOLY  405 

Talk  of  that  as  sound  business?  Talk  of  that  as  inevitable?  It 
is  based  upon  nothing  except  power.  It  is  not  based  upon  efficiency. 
It  is  no  wonder  that  the  big  trusts  are  not  prospering  in  proportion 
to  such  competitors  as  they  still  have  in  such  parts  of  their  business 
as  competitors  have  access  to ;  they  are  prospering  freely  only  in 
those  fields  to  which  competition  has  no  access.  Read  the  statistics 
of  the  Steel  Trust,  if  you  don't  believe  it.  Read  the  statistics  of 
any  trust.  They  are  constantly  nervous  about  competition,  and  they 
are  constantly  buying  up  new  competitors  in  order  to  narrow  the 
field.  The  United  States  Steel  Corporation  is  gaining  in  its  suprem- 
acy in  the  American  market  only  with  regard  to  the  cruder  manufac- 
tures of  iron  and  steel,  but  wherever,  as  in  the  field  of  more  ad- 
vanced manufactures  of  iron  and  steel,  it  has  important  competi- 
tors, its  portion  of  the  product  is  not  increasing,  but  is  decreasing, 
and  its  competitors,  where  they  have  a  foothold,  are  often  more 
efficient  than  it  is. 

Why?  Why,  with  unlimited  capital  and  innumerable  mines  and 
plants  everywhere  in  the  United  States,  can't  they  beat  the  other 
fellows  in  the  market?  Partly  because  they  are  carrying  too  much. 
Partly  because  they  are  unwieldy.  Their  organization  is  imperfect. 
They  bought  up  inefficient  plants  along  with  efficient,  and  they  have 
got  to  carry  what  they  have  paid  for,  even  if  they  have  to  shut  some 
of  the  plants  up  in  order  to  make  any  interest  on  the  investments; 
or,  rather,  not  interest  on  their  investments,  because  that  is  an  in- 
correct word, — on  their  alleged  capitalization.  Here  we  have  a  lot 
of  giants  staggering  along  under  an  almost  intolerable  weight  of 
artificial  burdens,  which  they  have  put  on  their  own  backs,  and  con- 
stantly looking  about  lest  some  little  pigmy  with  a  round  stone  in  a 
sling  may  come  out  and  slay  them. 

B.     CONDITIONS  OF  MONOPOLIZATION 
203.     The  Failure  of  Competition^^ 

BY  HENRY  W.   MACROSTY 

Modem  industry  is  essentially  speculative  in  character.  It  has 
been  said,  "It  is  for  the  prospective,  not  for  the  actually  existing, 
demand  that  a  producer  has  chiefly  to  provide.  Our  warehouses  and 
shops  overflow  with  goods  that  have  been  produced  before  being 
sold,  and  with  a  view  to  their  being  sold.  They  have  been  produced 
to  meet  the  prospective  demand,  and  to  measure  that  accurately  is 

^'Adapted  from  Trusts  and  the  State,  103-119.  Published  by  E.  P.  Dutton 
&  Co.  (1901). 


4o6  CURRENT  ECONOMIC  PROBLEMS 

not  in  the  power  of  the  most  able  and  prudent  man.""  This  state- 
ment applies  not  only  to  goods  for  consumption,  but  also  to  goods, 
such  as  machinery,  which  are  intended  to  aid  production.  The  com- 
munity is  interested  only  in  the  accommodation  of  the  whole  supply 
to  the  total  demand,  but  it  is  to  the  interest  of  each  individual  manu- 
facturer to  secure  for  himself  as  large  a  share  of  that  demand  as 
possible,  without  regard  to  the  probability  of  there  being  an  over- 
supply.  To  secure  custom  he  must  underbid  his  competitors ;  to 
make  the  low  price  profitable  he  must  reduce  his  expenses  of  produc- 
tion. There  is  thus  a  permanent  stimulus  to  the  improvement  of 
organization  and  to  the  invention  of  new  processes;  but  as  soon  as 
these  advantages  are  gained  they  are  immediately  lost  by  competi- 
tion, and  the  enhanced  profits  are  either  dissipated  in  expenses  or 
handed  over  to  the  consumer.  The  old  economists  justified  compe- 
tition on  this  very  ground,  that  the  desire  for  private  gain  drove 
capitalists  to  improve  their  industry,  and  then  compelled  them  to 
part  with  their  profits  to  the  general  public,  but  they  arrived  at  this 
only  by  neglecting  all  the  other  aspects  of  the  problem. 

The  aim  of  trade  is  to  make  profits ;  the  object  of  making  profits, 
according  to  commercial  philosophy,  is  to  make  savings.  The  re- 
investment of  savings  in  new  industrial  equipment  is  a  necessary 
condition  to  industrial  progress.  Thus  industrial  development  goes 
hand  in  hand  with  an  increase  in  industrial  equipment. 

This  steady  tendency  to  increase  the  productive  machinery  of 
the  country  necessarily  intensifies  competition.  But  if  "competition 
is  the  life  of  trade,"  it  is  the  death  of  business.  The  newcomers, 
equipped  with  the  newest  methods  and  the  latest  discoveries,  pro- 
duce more  cheaply  than  their  predecessors,  and  a  race  for  life  fol- 
lows, in  the  course  of  which  more  and  more  goods  at  lower  prices 
are  thrown  on  the  market.  If  the  low  prices  stimulate  fresh  demand, 
general  benefit  ensues,  but  the  rate  of  production  can  govern  con- 
sumption only  within  narrow  limits.  Owing  to  the  great  capacity 
of  modern  machinery,  the  operatives  employed  by  the  investment 
of  savings  can  consume  only  a  very  small  proportion  of  their  prod- 
uct. An  outlet  must  be  found  either  in  the  discovery  of  new  mar- 
kets, in  countries  yet  to  be  developed,  or  in  increased  home  con- 
sumption. The  former  involves  questions  of  foreign  policy  and  in- 
ternational competition,  and  must  gradually  diminish  in  importance 
as  a  solution.  As  for  the  latter,  the  inequitable  distribution  of 
wealth  and  the  permanent  maladjustment  of  purchasing  and  pr«3- 
ducing  power  necessarily  create  an  incalculable  disorganization  of 

*^*Mongradien,  The  Displacement  of  Labor  and  Capital,  25  (1886). 


CAPITALISTIC  MONOPOLY  407 

industry,  and  profoundly  increases  the  innate  inability  of  the  com- 
petitive system  to  balance  demand  and  supply. 

In  a  limited  market  it  is  possible  for  the  producer  to  forecast 
the  probable  demand  and  to  estimate  the  capacity  of  his  competitors 
to  meet  it ;  but  in  proportion  as  the  markets  widen,  both  these  neces- 
sary conditions  of  success,  and  especially  the  latter,  become  more  dif- 
ficult of  attainment.  A  farmer  in  Essex  finds  it  beyond  his  power 
to  reckon  up  the  probable  produce  of  a  Dakota  wheat-crop  or  the 
chances  of  a  scarcity  in  Russia  before  he  decides  what  acreage  he 
will  lay  down  in  com,  and  yet  his  inability  may  land  him  in  the 
bankruptcy  court.  Scarcely  less  difficult  is  it  for  the  Sheffield  manu- 
facturer to  foretell  the  probability  of,  say,  a  raid  on  rails  by  the  Car- 
negie combination.  \\'hat  is  true  of  normal  conditions  of  trade  holds 
good  with  reference  to  an  abnormal  demand,  and  the  efforts  to  meet 
the  latter  generally  have  far-reaching  and  destructive  consequences. 

The  inability  of  the  capitalist  system  to  control  its  own  produc- 
tivity must  increase  with  an  increase  in  the  complexity  of  the  organi- 
zation. The  influence  of  machinery  on  production  deserves  par- 
ticular attention.  Ever}'  invention  causes  displacement,  both  of  cap- 
ital and  of  labor;  and  while  its  benefits  are  distributed  over  the 
whole  community,  its  costs  must  be  borne  by  individual  capitalists 
and  laborers.  In  America  the  invention  of  new  labor-saving  ma- 
chines proceeds  so  fast  that  machinery  becojnes  antiquated  before 
it  is  worn  out,  and  the  workshops  are  in  a  constant  state  of  transi- 
tion. Usually  capital  suffers  less  than  labor,  because  of  its  greater 
fluidity  and  its  ability  to  recoup  itself  from  the  increased  productivity 
of  the  inventions.  And  large  businesses  suffer  less  than  small,  as 
their  powers  of  adaptation  are  greater,  and  therefore  small  concerns 
tend  to  go  to  the  wall.  But  loss  there  usually  is,  and  one  generation 
of  producers  is  sometimes  ruined  for  the  benefit  of  posterity. 

To  sum  up,  we  see  that  business  under  capitalism,  working 
through  competition,  shows  an  inherent  inability  to  equate  supply 
to  demand,  which  increases  as  the  market  widens.  The  savings  of 
profits  leads  to  overinvestment  in  productive  appliances,  from  which 
follow  overproduction,  fall  in  prices,  and  depression.  The  depres- 
sion displaces  labor,  and  the  process  increases  the  irregularity  of 
employment.  Reduction  of  profits  also  compels  economies  in  manu- 
facture and  transport,  the  greater  employment  of  improved  ma- 
chinery, and  the  invention  of  new  processes.  The  increased  pro- 
ductivity of  capital  causes  a  still  greater  reduction  in  prices  and 
profits,  and  increases  the  tendency  toward  disorganization.  It  is 
from  this  situation  that  combination  has  been  adopted  as  a  means 
of  escape. 


4o8  CURRENT  ECONOMIC  PROBLEMS 

204.     The  Incentives  to  Monopoly^* 

BY   CHESTER  W.   WRIGHT 

We  have  in  modern  capitalistic  industry  tendencies  toward  a 
widening  of  the  market  with  increased  localization  and  integration 
and  a  steadily  enlarging  scale  of  production  accompanied  by  a 
growing  fierceness  of  competition.  The  larger  the  concerns,  the 
smaller  their  number,  the  greater  their  resources  for  carrying  on 
a  fight,  the  bigger  the  prize  which  goes  to  the  winner,  the  fiercer 
becomes  the  competition  and  the  more  excessive  its  wastes.  Add 
to  this  the  difficulties  arising  from  the  small  margin  of  profit,  the 
more  complicated  and  prolonged  industrial  processes,  the  wide 
market,  and  the  large  use  of  fixed  capital — and  finally  add  the  extra 
gain  which  comes  from  the  power  of  monopoly  to  extort  exorbitant, 
prices,  and  one  understands  the  forces  which  are  fundamentally 
responsible  for  the  modern  trust  movement.  The  reason  for  many 
trusts  may  be  found  in  more  immediate  causes,  which,  for  the  very 
reason  that  they  are  more  immediate  and  obvious,  have  often  ap- 
peared, to  the  public  eye  at  least,  as  even  more  important. 

It  is  doubtless  true  that  a  considerable  number  of  trusts  owe 
their  origin  to  the  profits  which  it  was  expected  would  accrue  to 
the  promoter  who  undertook  the  task  of  organizing  the  trust.  This 
was  especially  the  case  in  the  promotion  which  went  on  during  the 
years  1898  and  1901,  when  the  money  market  and  other  conditions 
were  particularly  favorable;  but  it  is  not  likely  that  we  shall  soon 
see  a  recurrence  of  such  an  era.  There  can  be  no  question,  how- 
ever, that  the  lax  corporation  laws,  many  of  which  appear  to  have 
been  especially  designed  to  meet  the  promoter's  needs,  did  enable 
him  to  make  certain  gains  and  to  dispose  of  the  securities  put  out 
at  a  somewhat  higher  price  than  would  otherwise  have  been  pos- 
sible. Still,  it  must  be  borne  in  mind  that  the  more  fundamental 
causes  for  the  growth  of  trusts  were  really  at  the  bottom  of  even 
these  gains.  ' 

Most  prominent  among  the  second  group  of  more  immediate 
causes  for  the  growth  of  trusts — those  which  I  call  special 
privileges — are  railroad  favors,  tariff  duties,  and  patent  rights.  In 
former  years  railroad  favors  of  one  sort  or  another  were  doubtless 
given  to  many  of  the  trusts.  From  time  to  time  announcements 
have  been  made  that  these  discriminations  had  been  abolished ;  but 
frequently,  as  some  later  special  investigation  or  prosecution   re- 

"Adapted  from  "The  Trust  Problem — Prevention  versus  Alleviation,"  in 
the  Journal  of  Political  Economy,  XX,  578-581  (1912). 


CAPITALISTIC  MONOPOLY 


409 


vealed  the  facts,  it  has  been  found  that  they  still  exist.  However, 
the  evil  is  undoubtedly  much  less  frequent  than  formerly  and  today 
is  at  best  but  a  minor  factor.  Tlie  tariff  is  probably  of  more  im- 
portance as  an  aid  to  the  trusts,  though  I  am  inclined  to  believe  that 
its  influence  has  been  considerably  exaggerated.  Probably  its  chi^f 
effect  is  in  enabling  trusts,  most  of  which  would  exist  in  any  case, 
to  exact  somewhat  higher  prices  for  their  products  than  would 
otherwise  be  possible.  It  should  be  noted,  however,  that  it  is  the 
over-protective  tariff  which  offers  the  chief  incentive  for  the  for- 
mation of  trusts.  It  is  because  the  duties  are  often  so  much  higher 
than  is  necessary  to  maintain  the  industry  that  overproduction  en- 
sues and  the  domestic  manufacturers  are  led  to  combine  so  as  to 
secure  the  high  profits  made  possible  by  the  tariff.  To  enact  duties 
of  this  character .  is  to  do  nothing  less  than  to  offer  a  reward  for 
forming  a  trust.  The  importance  of  patent  rights  as  a  basis  for 
trusts  probably  deserves  more  attention  than  it  has  received. 

The  third  group  of  minor  causes  ^r  the  growth  of  trusts  in- 
cludes certain  methods  of  competition,  notably  factor  agreements 
and  discriminating  prices.  Under  such  agreements  the  manufac- 
turer or  wholesaler  may  sell  his  product  on  condition  that  the  price 
which  he  fixes  be  absolutely  maintained,  or  on  condition  that  the  re- 
tailer shall  not  deal  in  the  competing  product  of  any  rival,  or  per- 
haps that  he  shall  not  sell  such  rival  product  below  a  certain  price. 
Any  concern  putting  out  a  product  for  which  there  is  a  considerable 
demand  can  use  this  system,  especially  the  latter  form,  against  its 
rivals  with  trernendous  power  and  effectiveness.  The  practice  of 
discriminating  prices  is  also  a  powerful  weapon  for  building  up 
and  maintaining  monopoly  control. 

Closely  connected  with  this  is  the  power  exercised  by  control 
of  credit  which  is  sometimes  declared  to  be  an  important  weapon 
of  the  trust.  On  this  point  it  is  impossible  at  present  to  speak 
decisively.  Information  is  very  difficult  to  obtain  and  usually  con- 
flicting. There  is  some  reason  to  believe  that  a  large  concern  with 
the  close  financial  alliances  which  ordinarily  accompany  it  may  oc- 
casionally find  itself  in  a  position  where  it  can  control  the  credit 
obtainable  by  a  rival  at  some  crucial  moment  and  through  the  power 
thus  obtained  may  force  that  rival  to  capitulate,  often  at  a  heavy 
loss,  as  in  the  case  of  the  Pennsylvania  Sugar  Refining  Company. 
There  may  not  be  a  money  trust  but  apparently  there  are  times 
when  the  power  of  centralized  control  over  large  masses  of  capital 
proves  of  great  advantage  to  a  big  corporation. 


4IO  CURRENT  ECONOMIC  PROBLEMS 

205.     Large-Scale  Production  and  Monopoly^^ 

BY  CHARLES  J.  BULLOCK 

In  favor  of  the  proposition  that  the  tendency  of  large-scale 
production  is  to  pass  over  into  monopoly,  three  general  lines  of 
argument  may  be  distinguished:  (a)  the  contention  that  a  con- 
solidated enterprise  possesses  advantages  over  independent  com- 
panies in  producing  and  marketing  its  goods;  (b)  the  claim  that 
mere  mass  of  capital  confers  powers  of  destructive  warfare  so  great 
as  to  deter  possible  competitors  from  entering  the  field;  (c)  the 
belief  that  modem  competition  between  large  rival  establishments, 
representing  heavy  investments  of  fixed  capital,  is  injurious  to  the 
public,  ruinous  to  the  producers,  and  in  its  final  outcome  self-de- 
structive. As  our  discussion  proceeds  it  will  become  evident  to  the 
reader  that  all  of  these  arguments  can  be  employed,  with  consist- 
ency, only  by  those  who  believe  that  the  competitive  regime  is  to 
be  replaced  by  an  era  of  monopoly. 

First  in  this  list  is  the  (contention  that  a  consolidated  concern 
is  a  more  efficient  agent  of  production  and  exchange.  Thus  it  is 
claimed  that  trusts,  by  filling  orders  from  the  nearest  plant,  can 
eflFect  a  great  saving  in  cross-freights.  Data  upon  this  question  are 
available  in  the  recent  Bulletin  of  the  Department  of  Labor.  '  Of 
the  forty-one  combinations  reporting,  twenty-seven  failed  to  answer 
this  question,  nine  claimed  a  saving  from  this  source,  and  five 
stated  that  there  was  no  gain.  Of  the  nine  reporting  a  saving, 
the  Bulletin  states  the  amount  only  in  three  cases ;  and  in  two  of 
these'  the  item  of  cross- freights  was  combined  with  other  economies, 
the  aggregate  sums  being  $400,000  and  "considerably  over 
$500,000."  This,  be  it  remembered,  is  the  trusts'  own  showing, 
and  is  certainly  not  an  underestimate.  The  reason  for  these  com- 
paratively small  results  is  not  difficult  to  discover.  When  the  mon- 
opolized product  is  of  a  bulky  sort,  the  industry  is  already  localized 
pretty  thoroughly  before  combination  takes  place;  and,  since  most 
of  the  former  independent  establishments  were  producing  chiefly 
for  their  natural  local  constituencies,  the  trust  can  save  little  in 
cross-freights.  When,  however,  the  product  is  light,  transportation 
charges  become  a  matter  of  small  moment.  In  either  case  the  room 
for  saving  in  cross-freights  is  not  nearly  as  large  as  has  been  repre- 
sented, while  often  it  does  not  exist. 

.  Then  it  is  urged  that  a  trust  can  draw  upon  all  the  patented 
devices  of  the  constituent  companies,  and  employ  only  those  that 

"Adapted  from  "Trust  Literature:  A  Survey  and  a  .Criticism,"  in  the 
Quarterly  Journal  of  Economics,  XV,  190-210.    Copyright  (iQoO- 


CAPITALISTIC  MONOPOLY  411 

are  most  efficient.  But  advantages  accruing  from  this  fact  will  in 
most  cases  prove  to  be  of  a  temporary  nature,  as  trusts  that  have 
tried  to  base  a  monopoly  upon  the  control  of  all  available  patents 
have  learned  in  the  past,  and  will  learn  in  the  future.  Moreover,  a 
simple  reform  in  our  patent  laws  will  make  the  best  processes  avail- 
able for  all  producers  for  any  time  that  the  public  finds  such  a 
measure  to  be  necessary  for  protection  against  monopoly.  Here, 
then,  we  find  no  natural  law  working  resistlessly  towards  combi- 
nation, but  a  man-made  device  which  can  be  regulated  as  public 
policy  may  dictate. 

Again,  we  are  told  that  a  trust  can  produce  more  cheaply  than 
separate  concerns,  because  all  the  plants  utilized  can  be  nm  at  their 
full  capacity ;  whereas,  under  competition,  many  establishments  can 
be  kept  in  operation  but  a  part  of  the  time.  Some  observations  may 
be  made  concerning  this  claim. 

In  general,  it  may  be  denied  that,  whenever  governmental  in- 
terference has  not  produced  unhealthy  and  abnormal  conditions, 
competition  has  led  to  such  absurdly  excessive  investments  as  is 
commonly  assumed.  We  must  concede,  however,  that  under  nor- 
mal conditions  some  reduction  can  be  made  in  the  number  of  plants 
required  to  supply  the  market  at  ordinary  times ;  but  this  does  not 
dispose  of  the  matter.  If  a  trust  is  to  be  prepared  for  supplying 
the  market  promptly  in  times  of  rapidly  increasing  demand,  it  is 
necessary  that  some  surplus  productive  capacity  must  exist  in 
periods  of  stationary  or  decreasing  demand ;  for,  as  believers  in 
the  tendency  to  monopoly  often  remind  us,  many  months,  or  even 
one  or  two  years,  are  required  for  the  construction  of  new  plants. 
When  this  fact  is  taken  into  account,  the  case  will  stand  as  follows : 
except  where  the  action  of  government  has  produced  abnormal 
conditions,  the  capacity  of  competing  establishments  does  not  ex- 
ceed the  requirements  of  the  market  to  any  such  degree  as  is  com- 
monly assumed ;  even  a  trust  must  provide  for  periods  of  expanding 
trade ;  even  then,  not  all  rival  establishments  suffer  seriously  from 
inability  to  find  continuous  employment  for  their  plants,  so  that 
probably  the  advantages  secured  by  the  trust  are  of  consequence 
only  when  the  least  fortunate  or  least  efficient  independent  concerns 
are  made  the  basis  of  comparison. 

Again,  we  are  reminded  of  advantages  in  buying  materials  or 
selling  products.  It  is  urged  that  a  combination  can  purchase  its 
raw  materials  more  cheaply  than  separate  concerns.  No  one  doubts 
that  a  large  company  can  often  secure  better  terms  than  a  small 
establishment ;  but  it  is  not  so  clear  that  every  trust  can  secure 
supplies  more  cheaply  than  large  independent  enterprises,  unless 


412  CURRENT  ECONOMIC  PROBLEMS 

it  is  true  that  all  combinations  can  arbitrarily  depress  the  prices 
of  the  materials  which  they  consume.  Undoubtedly,  this  has  been 
done  by  some  of  the  trusts,  although  their  partisans  deny  it ;  but 
such  a  saving  represents  no  social  gain,  and  sometimes  it  may  be 
possible  for  would-be  competitors  to  profit  by  the  depressed  con- 
dition of  the  market  for  raw  materials. 

And,  finally,  we  come  to  economies  in  advertising  and  in  solicit- 
ing business,  where  the  wastes  of  competition  are  certainly  serious 
and  the  room  for  improvement  correspondingly  great.  Those  who 
deny  the  tendency  to  monopoly  generally  admit  that  a  trust  can 
have  a  material  advantage  here,  while  those  who  affirm  the  exist- 
ence of  such  a  tendency  evidently  realize  that  their  case  is  strong- 
est at  this  point.  Yet  an  opportunity  for  saving  in  these  depart- 
ments does  not  always  exist,  and  the  extent  of  the  economy  is  easily 
exaggerated  in  other  cases.  Mr.  Nettleton  is  right  when  he  says: 
"But  to  what  extent  the  trust  organizers  have  counted  on  prac- 
tically cancelling  expenditure  for  these  two  items,  on  the  ground 
that  buyers  will  be  obliged  to  come  to  the  sole  manufacturers,  they 
are  likely  to  be  surprised.  To  an  extent  which  few  appreciate,  the 
buying  public  has  become  accustomed  to  being  reminded  of  its 
needs  before  making  purchases.  Except  in  staple  and  absolutely 
necessar)^  commodities,  demand  is  largely  created  and  maintained 
by  advertising  through  periodicals,  catalogues,  or  travelling  sales- 
men. Hence,  the  trust  that  expects  to  save  the  bulk  of  this  import- 
ant item  must  also  expect  to  lose  through  diminished  sales  more 
than  the  economy  represents.  This  is  not  theory,  but  the  testimony 
of  leading  dealers  in  many  lines." 

We  must  now  take  into  account  certain  counteracting  forces, 
upon  which  some  writers  rest  their  belief  that  competition  will  ulti- 
mately prevail.  These  economists  contend,  in  the  first  place,  that, 
outside  the  field  of  the  natural  monopolies,  the  growth  of  a  busi- 
ness enterprise  is  limited  by  the  fact  that  companies  of  a  certain 
size  will  secure  "maximum  efficiency"  of  investment,  and  that  be- 
yond this  point  concentration  brings  no  increase  in  productive  ca- 
pacity. This  position  is  based  upon  the  belief  that  a  factory  of  a 
certain  size  will  enable  machinery  to  be  employed  in  the  most 
advantageous  manner;  that  a  reasonable  number  of  such  plants 
will  make  possible  all  needful  specialization  of  production;  that 
allied  and  subsidiary  industries  can  be,  and  are,  carried  on  by  large 
independent  concerns;  and  that  the  cost  and  difficulties  of  super- 
vision increase  rapidly  after  a  business  is  enlarged  beyond  a  certain 
size,  especially  when  it  is  attempted  to  unite  plants  situated  in  differ- 
ent parts  of  the  country.     For  this  reason,  increased  output  does 


CAPITALISTIC  MONOPOLY  413 

not  decrease  the  burden  of  fixed  charges  after  a  company  attains 
a  certain  magnitude ;  but,  on  the  contrar}-,  new  charges  arise. 
Among  such  new  expenses,  not  the  least  important  are  the  cost  of 
employing  the  most  skilled  legal  talent  to  steer  the  combination  just 
close  enough  to  the  law,  the  expenses  necessary  for  "legislative" 
and  "educational"  purposes,  and  the  outlays  for  stifling  competition 
or  the  continual  "buying  out"  of  would-be  rivals. 

It  is  argued  that  an  established  monopoly  will  suffer  actual  loss 
from  listless  and  unprogressive  management.  As  the  New  York 
Journal  of  Commerce  rightly  insists,  "It  is  not  to  be  denied  that 
such  concentrations  of  management  will  be  subject  to  countervail- 
ing offsets  from  the  absence  of  the  stimulus  of  competition;  from 
the  uncertainty  about  the  management  falling  into  the  best  pos- 
sible hands;  from  the  discouragement  to  invention  which  always 
attends  monopoly,  and  from  the  possibility  that  the  administration 
may  be  intrusted  to  'friends'  rather  than  to  experts."  As  Professor 
Clark  suggests,  an  established  monopoly,  secure  in  the  possession 
of  the  markets  of  a  large  country  "would  not  need  to  be  forever 
puHing  out  its  machines  and  putting  in  better,"  so  that,  as  com- 
pared with  countries  where  industry  is  upon  a  competitive  basis, 
such  a  combination  would  fall  behind  in  the  struggle  for  interna- 
tional trade.  In  ruthlessly  and  imceasingly  displacing  expensive 
machinery  with  newer  and  better  appliances,  American  manufac- 
turers have  probably  led  the  world;  but  monopolies  will  inevitably 
feel  reluctant  to  continue  such  an  energetic  policy  of  improvement. 
As  combinations  obtain  a  greater  age,  they  will  persist  in  old  and 
established  methods ;  while  nepotism  and  favoritism,  tending  to- 
wards hereditary  office-holding  will  replace  the  energetic  manage- 
ment that  some  of  the  trusts  now  display. 

Here  we  may  refer  to  two  of  the  alleged  advantages  of  trusts. 
It  is  said  that  combinations  develop  abler  management  through 
the  opportunity  they  afford  for  a  specialization  of  skill  upon  the 
part  of  their  officials,  and  that  efficiency  is  increased  by  a  compari- 
son of  the  methods  and  costs  of  production  in  the  various  plants. 

When  it  is  contended  that  the  "strength  of  the  trust  is  that  it 
gives  the  opportunity  for  the  exercise  of  these  highest  qualities  of 
industrial  leadership,"  and  that  it  gives  us  "a  process  of  natural 
selection  of  the  very  highest  order,"  we  may  question  whether  stock 
speculation  and  other  causes  lying  outside  the  sphere  of  mere  pro- 
ductive efficiency  have  not  had  more  to  do  with  the  formatibn  of 
recent  combinations  than  demonstrated  superiority  in  business  man- 
agement. And,  it  may  be  asserted  that  the  establishment  of  per- 
manent monopoly  will  interfere  seriously  with  the  future  process 


414  CURRENT  ECONOMIC  PROBLEMS 

of  selection.  It  must  be  remembered  that  the  able  leaders  now 
at  the  head  of  the  successful  trusts  were  developed  out  of  a  field 
which  afforded  the  widest  opportunity  for  creative  ability.  The 
supreme  qualities  requisite  for  great  industrial  leadership  are  not 
likely  to  be  fostered  by  a  regime  which  closes  each  important  branch 
of  manufactures  to  new  enterprise,  and  renders  hopeless  all  com- 
petition with  a  single  consolidated  company.  Will  successive  gen- 
erations of  bureau  chiefs  or  heads  of  departments  in  long-estab- 
lished corporations  be  able  to  continue  the  race  of  masterful  leaders, 
which  freedom  in  originating  and  organizing  independent  industries 
has  given  us  in  the  present  age? 

The  second  argument  advanced  to  prove  the  tendency  to  mon- 
opoly is  the  claim  that  mere  mass  of  capital  confers  such  powers 
of  destructive  warfare  as  to  deter  possible  competitors  from  en- 
tering the  industry,  at  least  until  prices  have  long  been  held  above 
the  competitive  rate.  It  is  said  that  a  large  combination  can  lower 
prices  below  the  cost  of  production  in  any  locality  where  a  small 
rival  concern  is  established,  thus  driving  it  out  of  the  field.  With- 
out doubt  the  destructive  competition  waged  by  combinations  is 
an  important  consideration,  and  it  may  well  enough  re-enforce  mon- 
opoly where  other  attendant  circumstances  favor  consolidation.  But 
a  monopoly  based  solely  upon  this  power  would  be,  confessedly,  a 
temporary  afifair;  for  probably  no  one  would  claim  that  all  capital- 
ists would  be  intimidated  permanently  by  such  circumstances. 

The  final  reason  for  the  belief  that  combinations  must  ulti- 
mately prevail  is  found  in  the  character  of  modern  competition  in 
these  industries  which  require  heavy  investments  of  fixed  capital. 
Under  such  conditions  the  difificulty  of  withdrawing  specialized  in- 
vestments and  the  losses  that  are  entailed  by  a  suspension  of  pro- 
duction make  competition  so  intense  that  prices  may  be  forced 
far  below  a  profitable  level  without,  decreasing  the  output ;  and  in- 
dustrial depression  inevitably  follows. 

In  support  of  this  line  of  argument,  it  is  said  that  trusts  are 
beneficial,  because  they  can  "exercise  a  rational  control  over  indus- 
try," and  "adjust  production  to  consumption."  Thus  it  is  believed 
that  commercial  crises  can  be  prevented,  or,  at  least,  that  their  worst 
effects  can  be  avoided.  But  such  arguments  overlook  the  facts  that 
a  restriction  placed  upon  production  by  a  trust,  especially  if  this 
is  sufficient  to  raise  prices  above  the  competitive  rate,  may  react 
injuriously  upon  other  trades;  and  that  monopoly  profits,  accruing 
to  a  small  body  of  capitalists  for  a  long  period  of  time,  must  con- 
stitute a  tax  upon  the  body  of  the  people  that  will  affect  the  dis- 
tribution of  wealth  in  such  a  way  as  to  reduce  the  consuming  power 


CAPITALISTIC  MONOPOLY  415 

of  the  masses.  A  reduction  in  purchasing  power  thus  produced 
would  render  excessive  the  existing  investments  in  staple  indus- 
tries, and  produce  crises. 

Not  only  is  it  doubtful  whether  monopoly  is  a  wise  method 
of  regulating  industry,  but  it  is  certain  that  the  evils  of  compe- 
tition are  greatly  exaggerated  in  some  cases,  while  in  others  they 
are  due  to  unhealthful  conditions  for  which  an  interference  with 
industrial  freedom  is  responsible.  In  many  other  industries  where 
trusts  have  been  formed,  the  excessive  investment  of  which  writers 
complain  was  caused  by  the  undue  stimulus  given  by  high  protective 
duties  and  by  the  restriction  of  foreign  competition.  Competition 
is  restricted  by  protective  duties  in  most  of  the.  industries  where 
combinations  are  formed;  these  duties  increase  the  severity,  and 
perhaps  the  frequency,  of  the  fluctuations  from  which  business 
suffers ;  then  trusts,  a  further  restriction  of  freedom,  are  advocated 
as  a  remedy  for  the  ills  caused  by  the  initial  interference  with  in- 
dividual enterprise ;  and,  finally,  in  order  to  regulate  the  trusts,  an 
elaborate  system  of  public  supervision  is  proposed.  Would  it  not 
be  well  to  make  a  genuine  trial  of  competition  before  condemning 
it  for  producing  evils  which  are  greatly  increased  by  governmental 
interference  with  industrial  freedom? 

206.     Monopoly  and  Efficiency^" 

BY  LOUIS  D.  BRANDEIS 

Earnest  argument  is  constantly  made  in  support  of  monopoly 
by  pointing  to  the  wastefulness  of  competition.  Undoubtedly  com- 
petition involves  some  waste.  What  human  activity  does  not?  The 
wastes  of  democracy  are  among  the  greatest  obvious  wastes,  but 
we  have  compensations  in  democracy  which  far  outweigh  that 
waste  and  make  it  more  efficient  than  absolutism.  So  it  is  with 
competition.  The  margin  between  that  which  men  naturally  do 
and  which  they  can  do  is  so  great  that  a  system  which  urges  men  on 
to  action,  enterprise  and  initiative  is  preferable  in  spite  of  the  wastes 
that  necessarily  attend  that  process.  I  say  "necessarily"  because 
there  have  been  and  are  today  wastes  incidental  to  competition  that 
are  unnecessary.  Those  are  the  wastes  which  attend  that  compe- 
tition which  does  not  develop,  but  kills.  Those  wastes  the  law  can 
and  shduld  eliminate.  It  may  do  so  by  regulating  competition. 
It  is,  of  course,  true  that  the  unit  in  business  may  be  too  small 
to  be  efficient.  The  larger  unit  has  been  a  common  incident  of 
monopoly.     But  a  unit  too  small  for  efficiency  is  by  no  means  a 

"Adapted  from  an  article  in  American  Legal  News,  XXIV,  8-12  (1913). 


4i6  CURRENT  ECONOMIC  PROBLEMS 

necessary  incident  of  competition.  It  is  also  true  that  the  unit  in 
business  may  be  too  large  to  be  efficient,  and  this  is  no  uncommon 
incident  of  monopoly.  In  every  business  concern  there  must  be 
a  size-limit  of  greatest  efficiency.  What  that  limit  is  will  differ  in 
different  businesses  and  under  varying  conditions  in  the  same  busi- 
ness. But  whatever  the  business  or  organization  there  is  a  point 
where  it  v.'ould  become  too  large  for  efficient  and  economic  man- 
agement, just  as  there  is  a  point  where  it  would  be  too  small  to 
be  an  efficient  instrument.  The  limit  of  efficient  size  is  exceeded 
when  the  disadvantages  attendant  upon  size  outweigh  the  advan- 
tages, when  the  centrifugal  force  exceeds  the  centripetal.  Man's 
work  often  outruns  the  capacity  of  the  individual  man ;  and,  no 
matter  what  the  organization,  the  capacity  of  an  individual  man 
usually  determines  the  success  or  failure  of  a  particular  enterprise, 
not  only  financially  to  the  owners,  but  in  service  to  the  community. 
Organization  can  do  much  to  make  concerns  more  efficient.  Organ- 
ization can  do  much  to  make  larger  units  possible  and  profitable. 
But  the  efficiency  even  of  organization  has  its  bounds ;  and  organ- 
ization can  never  supply  the  combined  judgment,  initiative,  enter- 
prise and  authority  which  must  come  from  the  chief  executive  of- 
ficers. Nature  sets  a  limit  to  their  possible  accomplishment.  As 
the  Germans  say:  "Care  is  taken  that  the  trees  do  not  scrape  the 
skies." 

That  mere  size  does  not  bring  success  is  illustrated  by  the 
records  of  our  industrial  history  during  the  past  ten  years.  This 
record,  if  examined,  will  show  that: 

(i)  Most  of  the  trusts  which  did  not  secure  monopolistic 
positions  have  failed  to  show  marked  success  as  compared  with 
the  independent  concerns. 

This  is  true  of  many  existing  trusts,  for  instance,  of  the  News- 
paper Trust,  the  Writing  Paper  Trust,  the  Upper  Leather  Trust, 
the  Sole  Leather  Trust,  the  Woolen  Trust,  the  Paper  Bag  Trust, 
the  International  Mercantile  Marine;  and  those  which  have  failed, 
like  the  Cordage  Trust,  the  Mucilage  Trust,  the  Flour  Trust,  should 
not  be  forgotten. 

(2)  Most  of  those  trusts  which  have  shown  marked  success 
secured  monopolistic  positions  either  by  controlling  the  whole  busi- 
ness themselves,  or  by  doing  so  in  combination  with  others.  And 
their  success  has  been  due  mainly  to  their  ability  to  fix  prices. 

This  is  true,  for  instance,  of  the  Standard  Oil  Trust,  the  Shoe 
Machinery  Trust,  the  Tobacco  Trust,  the  Steel  Trust,  the  Pull- 
man Car  Company. 


CAPITALISTIC  MONOPOLY 


417 


(3)  Most  of  the  trusts  which  did  not  secure  for  themselves 
monopoly  in  the  particular  branch  of  trade,  but  controlled  the  situ- 
ation only  through  price  agreements  with  competitors  have  been 
unable  to  hold  their  own  share  of  the  market  as  against  the  inde- 
pendents. 

This  is  true,  for  instance,  of  the  Sugar  Trust,  the  Steel  Trust, 
the  Rubber  Trust. 

(4)  Most  of  the  efficiently  managed  trusts  have  found  it  neces- 
sary to  limit  the  size  of  their  own  units  for  production  and  for 
distribution. 

This  is  true,  for  instance,  of  the  Tobacco  Trust,  the  Standard 
Oil  Trust,  the  Steel  Trust. 

Lack  of  efficiency  is  ordinarily  manifested  either 
(i)  in  rising  cost  of  product, 

(2)  in  defective  quality  of  goods  produced,  or 

(3)  in  failure  to  make  positive  advances  in  processes  and 
methods. 

The  third  of  these  manifestations  is  the  most  serious  of  all.  In 
this  respect  monopoly  works  like  poison  which  infects  the  system 
for  a  long  time  before  it  is  discovered,  and  yet  a  poison  so  potent 
that  the  best  of  management  can  devise  no  antidote. 

Take  the  case  of  the  Steel  Trust.  It  inherited  through  the  Car- 
negie Company  the  best  organization  and  the  most  efficient  steel 
makers  in  the  world.  It  has  had  since  its  organization  exceptionally 
able  management.  It  has  almost  inexhaustible  resources.  It  pro- 
duces on  so  large  a  scale  that  practically  no  experimental  expense 
would  be  unprofitable  if  it  brought  the  slightest  advance  in  the 
art.  And  yet:  "We  are  today  something  like  five  years  behind 
Germany  in  iron  and  steel  metallurgy,  and  such  innovations  as  are 
being  introduced  by  our  iron  and  steel  manufacturers  are  most  of 
them  merely  following  the  lead  set  by  foreigners  years  ago." 

The  Shoe  Machinery  Trust,  the  result  of  combining  directly 
and  indirectly  more  than  a  hundred  different  concerns,  acquired 
substantially  a  monopoly  of  all  the  essential  machinery  used  in 
bottoming  boots  and  shoes.  Its  energetic  managers  were  conscious 
of  the  constant  need  of  improving  and  developing  inventions  and 
spent  large  sums  in  efforts  to  do  so.  Nevertheless,  in  the  year  1910 
they  were  confronted  with  a  competitor  so  formidable  that  the  Com- 
pany felt  itself  obliged  to  buy  him  off,  though  in  violation  of  the 
law  and  at  a  cost  of  about  $5,000,000.  That  competitor,  Thomas  G. 
Plant,  a  shoe  manufacturer  who  had  resented  the  domination  of 
the  trust,  developed  an  extensive  system  of  shoe  machinery,  which 


4i8  CURRENT  ECONOMIC  PROBLEMS 

is  believed  to  be  superior  to  the  Trust's  own  system,  which  repre- 
sents the  continuous  development  of  that  Company  and  its  prede- 
cessors for  nearly  half  a  century. 

But  the  efficiency  of  monopolies,  even  if  established,  would  not 
justify  their  existence  unless  the  community  should  reap  benefit 
from  the  efficiency ;  the  experience  teaches  us  that  whenever  trusts 
have  developed  efficiency,  their  fruits  have  been  absorbed  almost 
wholly  by  the  Trusts  themselves.  From  such  efficiency  as  they  have 
developed  the  community  has  gained  substantially  nothing.  For  in- 
stance : 

The  Standard  Oil  Trust,  an  efficiently  managed  monopoly,  in- 
creased the  prices  of  its  principal  products  between  1895  and  1898, 
and  1903  to  1906  by  46  per  cent. 

The  Tobacco  Trust  is  an  efficiently  managed  monopoly.  Be- 
tween 1899  and  1907  the  selling  price  on  smoking  tobacco  rose  from 
2 1. 1  cents  per  pound  to  30.1  cents;  the  profit  per  pound  from  2.8 
cents  per  pound  to  9.8  cents.  The  selling  price  of  plug  tobacco  rose 
from  24.9  cents  per  pound  to  30.4  cents ;  the  profit  per  pound  from 
1.9  cents  to  8.7  cents. 

The  Steel  Trust  is  a  corporation  of  reputed  efficiency.  The  high 
prices  maintained  by  it  in  the  industry  are  matters  of  common 
knowledge.  In  less  than  ten  years  it  accumulated  for  its  share- 
holders or  paid  out  as  dividends  on  stock  representing  merely  water, 
over  $650,000,000. 

C.     THE  INFLUENCE  OF  MONOPOLY  ON  PRICE 
207.     The  Law  of  Monopoly  Price^^ 

BY  HENRY  ROGERS  SEAGER 

Monopolists  tend  to  fix  those  prices  for  their  products  which  will 
yield  the  largest  monopoly  profits.  What  this  means  may  be  made 
to  appear  from  a  simple  illustration. 

Consider  the  case  of  a  patented  article  in  general  use,  like  a 
special  brand  of  soap.  As  a  rule  the  expense  of  producing  such  an 
article  diminishes  as  the  number  of  units  produced  is  increased.  On 
the  other  hand,  as  the  number  of  units  offered  for  sale  increases, 
the  price  that  can  be  secured  from  each  unit  decreases.  Suppose  the 
volume  of  sales  at  different  prices,  the  expense  of  production  per 
unit  for  these  different  quantities  sold,  and  the  monopoly  profits 
received  are  as  represented  in  the  table  on  the  following  page.  It 
is  clear  that  here  the  price  that  aflfords  the  maximum  monopoly 

^'Adapted  from  The  Principles  of  Economics,  219-221.  Copyright  by 
Henry  Holt  &  Co.   (1913)- 


CAPITALISTIC  MONOPOLY 


419 


profit  will  be  ten  cents.  Until  this  price  is  reached  the  larger  volume 
of  sales  and  diminishing  expense  per  unit  more  than  counterbalance 
the  loss  due  to  lowering  the  price.  Below  ten  cents  the  loss  in  price 
is  no  longer  oflfset  by  these  factors,  although  they  continue  to  operate, 
and  consequently  profits  decline.  As  the  table  indicates,  monopoly 
price  does  not  necessarily  mean  high  price.  In  actual  practice  the 
margin  of  monopoly  profit  is  likely  to  be  quite  small  except  for  goods 
the  demand  for  which  is  quite  elastic. 


Price 

No.  of  Cakes 
Sold 

Gross  Receipts 

Expense  per 
Cake 

Gross  Expense 

Profits 

25  cents 
20      " 
15      " 

400,000 

600,000 

1,000,000 

$100,000 
120,000 
150,000 

8    cents 

7       " 
6       " 

$  32,000 
42,000 
60,000 

$  68,000 
78,000 
90,000 

10 

9      " 
8      " 

7      " 

2,500,000 
3,000,000 
3,500,000 
4,000,000 

250,000 
270,000 
280,000 
280,000 

I,  ■■ 

4^     " 
4f     " 

125,000 

145,714 
165,000 
185,000 

125,000 

124,286 

115,000 

95,000 

When  a  monopolist  enjoys  exclusive  control  of  the  monopolized 
good,  he  may  fix  the  price  at  the  point  affording  the  maximum  profit 
without  fear  of  exciting  competition.  But  few  monopolists  are  so 
fortunately  situated.  Competition  is  an  ever-present  possibility. 
Prudence  dictates  usually  a  more  conservative  policy  than  that 
which  would  secure  for  the  time  being  the  largest  monopoly  profits. 
In  the  case  above  the  price  is  likely  to  be  fixed  at  something  less  than 
ten  cents  in  the  expectation  that  the  present  loss  will  be  more  than 
made  good  by  the  protection  of  the  monopoly  from  future  competi- 
tion. In  the  same  way  fear  of  governmental  regulation  often  checks 
the  rapacity  of  monopolists  long  before  such  regulation  is  actually 
undertaken.  The  law  of  monopoly  price  thus  indicates  the  extreme 
limit  to  which  monopolists  are  likely  to  go  in  fixing  prices  and  not 
necessarily  the  price  that  they  will  actually  charge  under  the  prac- 
tical limitations  which  control  their  conduct. 

In  the  case  of  many  monopolized  products  there  are  diflFerent 
strata  of  demand,  each  controlled  by  somewhat  different  considera- 
tions. This  may  also  be  illustrated  by  reference  to  the  demand  for 
such  an  article  as  soap.  Many  consumers  would  prefer  to  pay  fifty 
cents  a  cake  for  soap  if  they  believed  that  by  so  doing  they  were  get- 
ting a  better  article  than  their  neighbors.  Taking  advantage  of  this 
fact,  the  shrewd  monopolist  offers  several  different  grades  for  sale 
at  different  prices.  That  intended  for  the  mass  of  consumers  is  put 
out  under  the  firm  name  simply  at  the  price — say  ten  cents — calcu- 
lated to  afford  the  maximum  monopoly  gain.  Along  with  this  is 
offered  at  a  higher  price — say  twenty-five  cents — the  same  article 


420  CURRENT  ECONOMIC  PROBLEMS 

colored  a  little  differently  or  pressed  into  a  different  shape,  which 
is  designated  "superior."  A  dash  of  inexpensive  scent  and  a  more 
elaborate  wrapper  transforms  "superior"  soap  into  "superfine"  and 
insures  a  limited  sale  at  fifty  cents  a  cake.  In  this  way  not  only  a 
large  margin  of  profit  is  secured  on  the  supposedly  better  grades, 
but  consumers  are  reached  who  would  never  think  of  buying  plain, 
ordinary  soap. 

This  practice  is  by  no  means  confined  to  manufacturers  of  pat- 
ented toilet  articles.  It  is  found  in  connection  with  nearly  every 
kind  of  commodity  which  enters  into  personal  consumption.  Makers 
of  bicycles  and  automobiles,  manufacturers  of  patented  foods  and 
beverages,  fashionable  tailors  and  haberdashers,  and  many  others 
recognize  the  opportunity  for  profit  along  this  line,  and  conduct  their 
business  accordingly.  The  resulting  complication  in  the  theory  of 
monopoly  price  is  easily  understood.  Instead  of  making  calcula- 
tions relative  to  consumers'  demand  as  a  whole,  the  monopolist 
makes  special  calculations  in  regard  to  the  extent  and  the  intensity 
of  the  demand  of  each  class  of  consumers. 

The  law  of  monopoly  price  may  be  suijimed  up  in  the  maxim, 
"Ask  that  price  which  is  calculated  to  yield  in  the  long  run  the 
maximum  monopoly  profit."  To  decide  what  that  price  is  the 
monopolist  must  gauge  the  extent  and  intensity  of  consumers'  de- 
mand both  as  a  whole  and  as  manifested  by  different  classes.  He 
must  then  calculate  his  own  expenses  of  production  for  different 
quantities  of  the  monopolized  good.  His  first  concern  will  usually 
be  to  put  out  the  standard  grade  at  a  price  which  will  afford  the 
largest  monopoly  profit.  If  the  demand  is  elastic  this  price  is  more 
likely  to  be  moderate  than  high.  Having  fixed  the  price  for  the 
standard  grade,  the  monopolist  will  consider  whether  it  would  not 
be  profitable  to  offer  superior,  superfine,  or  other  grades  to  par- 
ticular classes  of  consumers  at  higher  prices.  In  connection  with 
each  grade  he  must  make  a  calculation  similar  to  that  originally 
made,  and  he.  must  also  consider  how  the  sales  of  these  superior 
grades  will  react  upon  the  sales  of  the  good  of  standard  quality. 

208.     The  Limits  of  Monopoly  Price^^ 

BY  JOHN  A.  HOBSON 

The  real  danger  of  Trusts  in  their  control  of  prices  appears  when 
we  consider  the  control  in  relation  to  the  various  classes  of  com- 
modities which  form  the  subjects  of  monopoly. 

**Adapted  from  The  Evolution  of  Modern  Capitalism,  new  and  revised 
edition,  230-233.    Published  by  Charles  Scribner's  Sons  (1906). 


CAPITALISTIC  MONOPOLY  421 

1.  The  urgency  of  the  need  which  the  commodity  satisfies  de- 
termines the  height  of  the  price  which  the  monopoHst  can  charge. 
Where  a  community  is  dependent  for  its  hfe  upon  some  single  com- 
modity, the  monopoHst  is  able  to  obtain  a  high  price  for  the  whole 
of  a  supply  which  does  not  exceed  what  is  necessary  to  keep  alive 
the  whole  population.  Thus  the  monopolist  of  corn  in  a  famine 
can  get  an  exorbitant  price.  ,  But  if  the  supply  is  more  than  suffi- 
cient to  enable  everyone  to  satisfy  the  most  urgent  need  of  subsist- 
ence, the  urgency  of  the  need  satisfied  by  any  further  supply  falls 
rapidly. 

The  monopoly  of  a  necessity  of  life  is,  therefore,  more  dangerous 
than  any  other  monopoly,  because  it  not  merely  places  the  lives  of 
the  people  at  the  interest  of  traders  but  makes  it  of  interest  to  such 
monopolists  to  limit  supply  to  the  satisfaction  of  the  barest  neces- 
sities of  life.  * 

Next  to  a  necessity  will  come  what  is  termed  a  "conventional 
necessity,"  something  which  by  custom  has  been  firmly  implanted 
as  an  integral  portion  of  the  standard  of  comfort.  This  differs  with 
different  classes  in  the  community.  Boots  may  now  be  regarded  a 
"conventional  necessity,"  and  a  monopolist  could  probably  raise  their 
price  considerably  without  greatly  diminishing  the  consumption. 

As  we  descend  in  the  urgency  of  wants  we  find  that  the  comforts 
and  luxuries  form  a  part  of  the  standard  of  life  of  a  smaller  and 
smaller  number  of  people.  Since  they  satisfy  intrinsically  weaker 
needs,  the  demand  for  them  is  more  likely  to  fall  with  a  rise  in 
price. 

2.  Closely  related  is  the  possibility  of  substituting  another  com- 
modity for  the  one  monopolized.  This  everywhere  tempers  the 
urgency  of  the  need  attaching  to  a  commodity.  There  are  few,  if 
any,  even  among  the  commodities  on  which  we  habitually  rely,  that 
we  could  not  and  would  not  dispense  with  if  their  price  rose  very 
high.  The  incessant  competition  between  different  commodities  for 
the  satisfaction  of  the  same  need  cannot  be  gotten  rid  of  by  a 
monopoly  of  one  of  them.  Though  to  a  modern  society  artificial 
light  is  much  more  important  than  cane  sugar,  a  Sugar  Trust  may 
have  a  stronger  monopoly  than  an  Oil  Trust,  because  the  substitutes 
for  cane  sugar,  such  as  molasses  and  beet-root,  are  less  effective 
competitors  than  gas,  candles,  and  electricity  with  oil. 

The  reverse  consideration,  the  possibility  of  extending  consump- 
tion and  securing  a  wider  market  for  an  article  by  substituting  an 
article  of  monopoly  for  other  articles,  has  quite  an  important  influ- 
ence on  price.  The  possibility  of  substituting  oil  for  coal  in  cook- 
ing has  a  great  deal  to  do  with  the  low  price  of  oil.    A  Trust  will 


422  CURRENT  ECONOMIC  PROBLEMS 

often  keep  prices  low  for  a  season  to  enable  their  article  to  under- 
sell and  drive  out  a  rival  article.  When  natural  gas  was  discovered 
in  the  neighborhood  of  Pittsburgh,  the  price  was  lowered  sufficiently 
to  induce  a  large  number  of  factories  to  give  up  coal  and  burn  gas. 
After  expensive  fittings  were  put  in  and  the  habit  of  using  estab- 
lished, the  gas  company  proceeded  to  raise  the  rates  loo  per  cent. 
When  we  ascend  to  the  higher  luxuries,  the  competition  between 
different  commodities  to  satisfy  the  same  generic  want,  or  even  to 
divert  taste  or  fashion  from  one  class  of  consumption  to  another, 
is  highly  complicated,  and  tempers  considerably  the  power  of  a 
Trust  over  prices. 

In  like  manner  the  power  over  prices  possessed  by  a  company 
whose  monopoly  rests  upon  patent  rights  is  limited  by  the  ability 
of  consumers  to  substitute  other  articles  for  the  article  in  question. 
For  instance,  the  price-control  of  the  manufacturer  of  a  patented 
corkscrew  is  qualified  very  largely,  not  only  by  competition  of  other 
corkscrews,  but  by  screw-stoppers  and  various  other  devices  for  ob- 
taining access  to  the  contents  of  bottles. 

3.  There  is  also  the  influence  of  potential  competition  of  other 
producers  upon  monopoly  prices.  The  ability  of  outside  capital  to 
enter  into  competition  will,  of  course,  differ  in  different  trades. 
Where  the  monopoly  is  protected  by  a  tariff  the  possibility  of  new 
competition  from  outside  is  lessened.  When  the  monopoly  is  con- 
nected with  some  natural  advantage  or  the  exclusive  possession  of 
some  special  convenience,  as  in  mining  or  railways,  direct  competi- 
tion of  outsiders  on  equal  terms  is  prohibited.  Where  the  combina- 
tion of  large  capital  and  capable  management  is  indispensable  to  the 
possibility  of  success  in  a  rival  producer,  the  power  of  the  monopoly 
is  stronger  than  where  a  small  capital  can  produce  upon  fairly  equal 
terms.  If  the  monopoly  is  linked  closely  with  personal  qualities  and 
with  special  opportunities  of  knowledge,  as  in  banking,  it  is  most 
difficult  for  outside  capital  to  compete  effectively. 

These  considerations  show  that  the  power  of  the  Trust  over 
prices  is  determined  by  a  number  of  intricate  forces  which  react 
upon  one  another  with  varying  degrees  of  pressure. 


CAPITALISTIC  MONOPOLY  423 

D.     TYPES  OF  UNFAIR  COMPETITION 
209.     Competitive  Methods  in  the  Tobacco  Business** 

BY  MEYER  JACOBSTEIN 

The  most  familiar  as  well  as  the  most  effective  device  employed 
for  stifling  competition  has  been  that  of  "local  competition" — under- 
selling a  competitor  in  his  own  limited  market  while  sustaining 
prices  elsewhere.  This  device  is  feasible  only  for  large  companies 
that  can  make  temporary  sacrifices  for  the  possibility  of  greater 
gains  in  the  future.  In  the  early  nineties,  to  check  the  sale  of 
"Admiral"  cigarettes  maniifactured  by  an  independent  concern, 
the  American  Tobacco  Company  offered  its  leading  brand,  "Sweet 
Caporal,"  at  cost,  but  only  in  regions  where  the  Admiral  was  being 
successfully  marketed.  The  independent  concern  surrendered  soon 
afterward.  In  1901,  the  American  Tobacco  Company  was  selling 
"American  Beauty"  cigarettes  for  $1.50  per  thousand,  less  two  per 
cent  discount  for  cash,  when  the  revenue  tax  alone  was  $1.50  per 
thousand.  This  was  done^  however,  only  where  an  independent 
company  had  succeeded  in  marketing  its  most  popular  brand,  the 
"North  Carolina  Bright."  New  York  jobbers  found  that  by  purchas- 
ing their  cigarettes  from  North  Carolina  jobbers,  after  paying  a 
slight  premium  in  addition  to  freight  charges,  they  would  pay  less 
for  them  than  by  buying  direct  from  the  Trust  in  New  York  City. 

The  local  competition  which  helped  to  build  up  the  Cigarette 
Trust  was  practiced  in  the  sale  of  other  products.  During  the  strug- 
gle for  the  plug  market  between  the  Continental  and  Liggett  & 
Myers,  the  former  was  offering  its  "Battle  Ax"  brand  for  thirteen 
cents  a  pound,  which  was  below  the  cost  of  production,  since  the  tax 
was  six  cents  and  the  raw  leaf  seven  cents  a  pound.  After  the  inde- 
pendent concern  was  absorbed,  "Battle  Ax"  rose  to  thirty  cents  a 
pound.  By  similar  methods  the  trust  has  won  extensive  markets  in 
England  and  Japan. 

An  instrument  frequently  employed  to  make  local  competition 
effective  is  the  "Factors'  Agreement,"  whereby  the  jobber  is  offered 
special  rebates  for  agreeing  to  handle  Trust  goods  exclusively,  or  to 
boycott  independent  brands.  While  a  2^  per  cent  commission  was 
allowed  jobbers  who  did  not  discriminate  against  Trust  goods,  75^ 
per  cent  was  given  to  those  who  handled  Trust  goods  exclusively. 
Frequently  orders  from  concerns  carrying  in  stock  independent 
goods  were  not  filled.    The  Factors'  Agreement  is  especially  potent 

^'Adapted  from  The  Tobacco  Industry  in  the  United  States,  117-121. 
Copyright  by  the  author.    Published  in  the  Columbia  Studies  Series  (1907). 


424  CURRENT  ECONOMIC  PROBLEMS 

in  crushing  any  new  competition  in  markets  already  controlled  by 
the  Trust,  for  the  jobber  is  loath  to  risk  his  assured  profits,  derived 
from  the  sale  of  established  Trust  brands,  in  exchange  from  the 
doubtful  income  from  new,  independent  goods. 

A  closely  allied  device  is  that  known  as  "Brand  Imitation."  This 
is  a  most  direct  form  of  destructive  competition :  it  consists  of  selling 
at  reduced  prices  brands  which  are  apparently  imitations  of  popu- 
lar brands  of  independent  manufacturers.  An  instance  of  this  is 
the  marketing  at  a  low  figure  by  the  Trust  of  the  "Central  Union" 
smoking  tobacco  in  direct  competition  with  the  "Union  Leader"  of 
an  independent  concern.  The  Trust  distributed  its  "Central  Union" 
free  to  jobbers  in  order  to  ruin  the  "Union  Leader."  It  was  not 
until  the  reputation  of  the  independent  brand  had  been  seriously 
damaged  that  the  courts  enjoined  the  Trust  from  further  free  dis- 
tribution. Similarly  the  Trust  marketed  at  a  low  price  a  brand  in 
imitation  of  the  "Qboid"  tobacco  manufactured  by  Larus  &  Brothers. 
As  value  of  a  brand  is  one  of  the  important  assets  in  the  tobacco 
trade,  these  methods  are  very  ruinous  to  independent  manufacturers 
who  cannot  withstand  a  persistent  attack  from  the  Trust. 

Another  device  is  the  use  of  the  coupon  system,  whereby  the  con- 
sumer receives  a  premium  certificate  equivalent  to  a  lo  per  cent  re- 
bate. The  coupon  system  is  especially  valuable  in  the  tobacco  trade 
because  it  serves  as  a  substitute  for  the  cutting  of  prices,  the  latter 
being  difficult,  owing  to  the  existence  of  conventional  and  conven- 
ient prices,  five  cents  and  multiples  of  five.  It  is  more  feasible  to 
give  coupons  than  to  reduce  a  five-cent  cigar  to  four  cents.  Since 
much  of  the  tobacco  trade  is  transient,  the  successful  operation  of 
the  premium  plan  depends  upon  a  wide  distribution  of  stores  that 
offer  the  coupons,  as  through  a  chain  of  retail  agencies  like  the 
United  Cigar  Stores. 

210.     Competitive  Methods  in  the  Cash  Register  Business-^ 

BY  HENRY  ROGERS  SEAGER 

The  specifications  in  the  indictment  against  the  National  Cash 
Register  Company,  on  the  basis  of  which  twenty-seven  of  its  officers 
were  found  guilty  by  a  jury  in  February,  1913,^^  indicate  in  a  concrete 

*" Adapted  from  The  Principles  of  Economics.  453-455.  Copyright  by 
Henry  Holt  &  Co.  (1913). 

"In  June,  191 5,  the  Supreme  Court  of  the  United  States  refused  to  sus- 
tain an  appeal  from  the  decision  of  a  higher  federal  court  reversing  the 
decision  of  the  lower  court  referred  to  in  the  text,  and  acquitting  the  offi- 
cers of  the  National  Cash  Register  Company.  This  closes  the  case  against 
them. — Editor. 


CAPITAUSTIC  MONOPOLY  425 

way  the  kind  of  practices  in  which  some  of  the  trusts  engaged.  They 
were : 

1.  It  bribed  the  employees  of  competitors  to  reveal  the  secrets 
of  the  competitors'  business.  By  this  means  it  obtained  knowledge 
of  prospective  buyers  of  cash  registers,  of  those  who  had  purchased 
them  but  had  not  fully  paid  for  them,  of  the  volume  of  business  be- 
ing done  by  the  competitors  and  the  places  in  which  it  was  being 
done,  of  inventions  and  applications  for  patents  by  the  competitors, 
and  of  their  financial  condition  and  connections. 

2.  It  bribed  the  employees  of  truckmen,  express  companies, 
railways,  telegraph  and  telephone  companies  to  reveal  information  in 
regard  to  the  shipping  of  cash  registers  by  competitors,  and  in  regard 
to  the  communication  between  the  competitors  and  their  agents  and 
customers. 

3.  It  used  its  influence  with  banks  and  other  institutions,  some- 
ti;nes  going  to  the  extent  of  making  false  statements  to  injure  the 
credit  of  competitors  in  order  to  prevent  their  securing  money  for 
carrying  on  their  business. 

4.  It  required  its  sales  agents  to  interfere  in  every  way  with  the 
sales  of  competitive  cash  registers.  The  means  used  included  the 
making  of  false  statements  with  regard  to  the  registers  themselves, 
as  well  as  false  statements  reflecting  injuriously  upon  the  business, 
character,  and  financial  credit  of  its  competitors. 

5.  It  oflFered  to  sell  to  prospective  purchasers  of  competitive 
cash  registers  the  National's  machines  at  much  less  than  the  stand- 
ard prices  and  upon  unusually  favorable  terms. 

6.  It  induced  persons  who  had  already  ordered  competitive  cash 
registers  to  cancel  their  orders  and  purchase  from  the  National,  by 
making  further  reductions  in  the  price  of  National  registers  equiva- 
lent to  the  amount  already  paid  in  on  the  purchase  of  the  competitive 
cash  registers.  It  induced  persons  who  had  already  bought  other 
registers  to  exchange  them  for  the  machines  of  the  National,  where- 
upon it  exhibited  in  the  windows  of  stores  where  National  machines 
were  for  sale  these  machines  with  placards  containing  the  word 
"Junk,"  or  the  words  "For  Sale  at  Thirty  Cents  on  the  Dollar." 

7.  It  offered  for  sale  to  prospective  purchasers  of  other  ma- 
chines cash  registers  made  in  imitation  of  those  others  at  prices  even 
lower  than  manufacturer's  cost.  These  thus  offered  for  sale  were 
known  as  "knockers."  The  manufacture  of  a  particular  type  of 
"knocker"  was  discontinued  as  soon  as  its  use  was  no  longer  nec- 
essary. 

8.  It  sometimes  offered  for  sale  "knockers"  having  weak  and 
defective  mechanism.  This  practice  had  two  purposes.  It  enabled 
the  sales  agent  to  point  out  the  weak  and  defective  mechanism  and 


426  CURRENT  ECONOMIC  PROBLEMS 

to  claim  that  the  competitive  cash  register  had  the  same  shortcom- 
ings. It  also  enabled  him,  in  case  the  customer  insisted  upon  pur- 
chasing the  "knocker,"  to  persuade  the  customer  to  purchase  a  gen- 
uine National  machine  when  the  "knocker,"  as  was  inevitable,  speed- 
ily broke  down. 

9.  It  instructed  its  sales  agents  secretly  to  weaken  and  injure 
the  internal  mechanism  and  to  remove  and  destroy  parts  of  competi- 
tive cash  registers  in  actual  use  by  purchasers  whenever  they  could 
get  their  hands  upon  them.  The  object  was  evidently  to  cause  the 
purchaser  of  a  competitive  cash  register  to  become  dissatisfied  and 
to  turn  to  the  National  to  replace  it. 

10.  It  threatened  competitors  and  purchasers  of  competitors' 
machines  with  suits  for  infringement  of  the  National's  patent  rights, 
when  no  such  right  existed,  and  no  such  suit  was  contemplated. 

11.  In  other  cases  it  began  suit  against  competitors  and  against 
purchasers  of  competitive  cash  registers  for  infringement  when  it 
was  well  known  that  there  was  no  ground  for  such  suits  and  when 
there  was  no  intention  of  pressing  the  suits  beyond  the  point  neces- 
sary to  harrass  the  competitors. 

12.  It  organized  cash  register  manufacturing  concerns  and  sales 
concerns  ostensibly  as  competitors  of  itself,  but  in  fact  as  convenient 
instruments  for  gaining  the  confidence  and  obtaining  the  secrets  of 
competitors. 

13.  It  induced,  by  offers  of  largely  increased  compensation,  the 
agents  and  employees  of  competitors  to  leave  the  employment  of  the 
competitors  to  enter  that  of  the  National. 

14.  It  applied  for  patents  upon  the  cash  registers  of  competitors 
and  upon  improvements  upon  those  cash  registers  merely  for  the 
purpose  of  harrassing  the  competitors  by  interference  suits  and 
threats  to  institute  such  suits. 

211.    The  "Tieing"  Agreement" 

BY  W.  H.  S.  STEVENS 

Perhaps  the  most  interesting  of  any  of  the  methods  of  unfair 
competition  is  the  requirement  that,  in  order  to  obtain  certain  ar- 
ticles, a  concern  shall  lease,  sell,  purchase,  or  use  certain  other  ar- 
ticles. The  successful  imposition  of  such  requirements  is-  usually 
most  destructive  to  competition ;  and  not  infrequently  it  may  be  sup- 
pressed altogether.  Though  conditions  of  this  character  show  va- 
riety, they  may  be  discussed  under  three  heads : 

**Adapted  from  "Unfair  Competition,"  in  the  Political  Science  Quarterly, 
XXIX,  291-299.  Copyright  (1914). 


CAPITAUSTIC  MONOPOLY  427 

1.  The  purchase  or  lease  of  articles  upon  which  the  patents 
have  expired,  as  a  condition  of  obtaining  patented  articles. 

The  *'tieing"  clauses  in  the  leases  of  the  United  Shoe  Machinery 
Company  furnish  an  example  of  this.  A  "tieing"  clause  may  be 
described  as  a  provision  that  a  given  machine  must  be  used  in  con- 
junction with  another  or  other  machines.  Sometimes  the  Shoe  Ma- 
chinery Company  leases  together  two  patented  articles.  In  certain 
other  cases  the  leases  have  tied  to  patented  machines  others  upon 
which  the  patents  have  expired.  The  effect  of  the  latter  type  of 
clause  was  described  by  a  witness  before  a  congressional  committee : 
"At  the  present  time  a  very  large  proportion  of  the  important  basic 
patents  have  expired,  and  but  for  the  restrictions  imposed  upon  us 
by  their  leasing  system  we  should  today  be  exercising  our  undoubted 
right  to  use,  without  royalty,  a  large  part  of  the  machinery  now 
employed." 

The  Crown  Cork  &  Seal  Company,  of  Baltimore,  manufactures 
more  tin  caps  for  bottles  than  does  any  other  concern  in  the  United 
States.  The  same  concern  also  controls  patents  upon  a  certain  de- 
vice known  as  the  Jumbo  capping  machine.  None  of  the  machines 
is  sold.  They  are  leased  to  brewing  and  bottling  establishments 
under  agreements  which  provide  that  the  "said  machines  shall  be 
used  only  in  connection  with  Crown  corks  purchased  by  the  lessee 
directly  from  the  lessor."  The  patents  on  the  caps  expired  years 
ago.  The  lease  attempts  to  compel  bottlers  to  purchase  all  caps  from 
the  Crown  Cork  &  Seal  Company. 

The  theory  which  underlies  the  grant  of  a  monopoly  in  a  patent 
is  that  human  progress  is  promoted  by  the  gift  to  inventors  for  a 
term  of  years  of  the  exclusive  property  in  their  inventions.  At  the 
end  of  the  period  it  is  intended,  however,  that  the  inventions  shall 
become  the  property  of  the  public.  Theoretically  any  concern  may 
begin  the  production  of  an  article  previously  patented  as  soon  as  the 
term  of  the  patent  expires.  Actually  it  may  be  unable  to  do  so. 
Conditional  requirements  may  so  destroy  the  market  that  even  if  the 
goods  were  produced  there  would  be  no  customers  to  purchase.  This 
precise  situation  seems  to  have  developed  through  the  "tieing" 
clauses  of  the  Shoe  Machinery  Company  applying  to  patents. 

2.  The  use  of  certain  patented  articles  as  a  condition  of  obtain- 
ing other  patented  articles. 

The  contracts  of  the  Shoe  Machinery  Company  require  that  a 
given  patented  machine  must  be  used  in  conjunction  with  another 
patented  machine.  Under  free  competition  the  relative  productive 
eflficiency  of  various  machines  produced  by  various  concerns  would 
determine  to  a  nicety  the  reward  belonging  to  each  patentee.  As  it 
is,  a  machine  more  efficient  than  the  United's  machine  for  the  work 


428  CURRENT  ECONOMIC  PROBLEMS 

it  is  designed  to  perform  might  have  no  market  and  bring  in  no 
royalties  to  its  patentee.  A  similar  case  is  that  of  the  Motion  Pic- 
ture Patents  Company,  which,  by  virtue  of  its  film  control,  has  en- 
deavored to  compel  the  use  of  motion  pictures  containing  one  or 
more  of  the  patents  which  it  controls. 

3.  The  purchasing,  selling,  or  handling  of  a  certain  article  or 
line  of  articles  as  the  condition  of  the  purchase  or  handling  of  an- 
other article  or  line  of  articles. 

The  Commissioner  of  Corporations  in  his  report  on  the  Interna- 
tional Harvester  Company  has  used  the  term  "full-line  forcing"  to 
describe  "the  practice  of  requiring  dealers  to  order  new  lines  as  a 
condition  of  retaining  the  agency  for  some  brand  of  the  company's 
harvesting  machines." 

A  restriction  of  similar  character  is  charged  by  the  government 
in  its  suit  against  the  American  Coal  Products  and  Barrett  Manu- 
facturing companies.  These  concerns  are  supposed  to  have  a  very 
substantial  control  of  the  pitch  made  from  coal  tar.  Some  pur- 
chasers and  users  of  roofing  materials  have  been  required  to  buy 
one  ton  of  felt  to  every  two  tons  of  pitch. 


212.     Monopoly  Control  of  Cost  Goods^^ 

BY  W.   H.  S.   STE^VENS, 

Attempts  to  acquire  the  control  of  the  machinery  necessary  to 
the  manufacture  of  a  particular  line  of  goods  are  by  no  means  un- 
known. Following  its  organization  in  1890  the  old  American  To- 
bacco Company,  by  securing  and  maintaining  for  some  time  the  ex- 
clusive control  of  the  most  successful  cigarette  machinery,  was  en- 
abled to  strengthen  its  dominant  position  in  the  business.  At  the 
time  of  its  organization  it  acquired  control  of  the  Allison  and  the 
Emery  machines,  the  patents  of  which  belonged  to  firms  entering  the 
new  combination.  Soon  afterward  it  made  a  contract  for  the  ex- 
clusive use  and  control  of  the  Bonsack  machine.  Thus  it  acquired 
control  of  the  very  best  machines  used  in  the  production  of  cig- 
arettes. 

In  19 1 3  the  government  brought  suit  against  the  American  Can 
Company.  That  concern  was  charged  with  acquiring  control  of  the 
principal  can-making  machinery  plants  of  the  United  States,  together 
with  most  of  the  valuable  patents  for  making  that  machinery.  In 
some  cases  this  result  was  accomplished  through  long-term  contracts 

** Adapted  from  "Unfair  Competition,"  in  the  Political  Science  Quarterly 
XXIX,  4^475-    Copyright  (1914). 


CAPITAUSTIC  MONOPOLY  429 

with  patentees  for  controlling  the  disposition  of  the  machinery  man- 
ufactured under  their  patents ;  in  others  by  the  purchase  of  licenses 
which  the  owners  of  the  patents  had  issued  to  the  manufacturers  of 
cans ;  in  still  others  by  obtaining  contracts  not  to  sell  such  machinery 
to  other  parties. 

Somewhat  different  are  cases  in  which  control  is  acquired  of  the 
articles  or  materials  which  enter  into  the  manufacturing  process. 
The  greater  part  of  the  supply  of  raw  paper  used  in  the  manufac- 
ture of  photographic  papers  throughout  the  world  is  said  to  be  in 
the  hands  of  the  General  Paper  Company  of  Germany.  Prior  to 
1906,  when  the  control  of  this  company  was  almost  complete,  the 
General  Aristo  Company,  which  is  controlled  by  the  Eastman  Kodak 
Company,  is  alleged  to  have  contracted  to  purchase  the  entire  supply 
of  raw  paper  exported  by  the  General  Paper  Company  to  the  United 
States.  This  contract,  it  is  claimed,  was  continued  from  1906  to 
1910.  Testimony  before  the  Industrial  Commission  is  to  the  effect 
that  the  Photographic  Supplies  Combination  first  secured  control  of 
raw  paper  imported  from  Germany  about  the  year  1899. 

The  government  has  charged  the  Aluminum  Company  of  Amer- 
ica with  endeavoring  to  obtain  such  a  control  of  the  bauxite  prop- 
erties of  the  United  States  as  would  prevent  anyone  but  itself  from 
producing  metal  aluminum.  Prior  to  1905,  the  Aluminum  Company 
of  America  possessed  valuable  bauxite  properties,  yet  it  did  not  ap- 
proach control  of  even  50  per  cent  of  the  total  bauxite  supply  of  the 
United  States.  In  that  year,  however,  the  company  through  the 
General  Chemical  Company  acquired  the  capital  stock  of  the  General 
Bauxite  Company.  As  part  consideration  for  this  contract,  the 
General  Chemical  Company  agreed  that  it  would  not  use  or  sell 
bauxite  sold  to  it  by  the  General  Bauxite  Company  for  conversion 
into  metal  aluminum,  but  would  use  it  solely  for  the  manufacture  of 
alum,  alum  salts,  alumin^  sulphate,  and  similar  products.  In  1909  a 
contract  was  made  with  the  Norton  Chemical  Company  for  the  pur- 
chase of  the  bauxite  properties  of  the  Republic  Mining  &  Manufac- 
turing Company,  whose  capital  stock  was  owned  by  the  Norton 
company.  In  considering  these  contracts  made  by  the  Aluminimi 
Company  of  America,  it  should  be  borne  in  mind  that  this  organ- 
ization is  alleged  to  control  nearly  one-half  of  the  stock  of  the  Alum- 
inum Castings  Company,  37  per  cent  of  the  stock  of  the  Aluminum 
Goods  Manufacturing  Company,  and  to  be  sole  owner  of  the  stock 
of  the  Northern  Aluminum  Compa.  /  and  the  United  States  Alum- 
inum Company,  manufacturers  of  aluminum  cooking  utensils. 


430  CURRENT  ECONOMIC  PROBLEMS 

E.     THE  GOVERNMENT  AND  MONOPOLY 
213.     Law  and  the  Forms  of  Combination-* 

BY  BRUCE  WYMAN 

Notwithstanding  all  the  law  against  agreements  in  restraint  of 
trade,  the  present  generation  has  seen  the  greatest  movement  toward 
consolidation  which  is  recorded  in  economic  history.  But  this  was 
not  accomplished  without  a  reckoning  with  the  law.  In  the  face  of 
adverse  law  the  ingenuity  of  attorneys,  acting  for  clients  who  wished 
to  bring  about  a  community  of  interests,  has  been  taxed  to  the 
utmost;  and  at  best  their  schemes  have  proved  only  temporary  ex- 
pedients. In  this  era  of  consolidation  there  has  been  a  change  of 
base  at  least  four  times :  first,  the  pool — a  direct  agreement  between 
the  corporations  concerned  for  their  joint  operation  to  a  certain  ex- 
tent ;  second,  the  trust — an  indirect  arrangement  between  the  share- 
holders to  control  the  actions  of  their  corporations  ;  third,  the  holding 
company — a  central  company  to  hold  the  shares  of  the  constituent 
companies ;  and,  fourth,  the  single  corporation,  which  buys  the  prop- 
erties of  the  competing  corporations  outright.  Yet,  despite  these 
various  forms,  the  problem  as  to  how  various  corporations  may  be 
concentrated  under  one  control  is  still  to  a  large  extent  unsolved. 

There  was  never  real  legal  expectation  of  the  success  of  any 
form  of  pooling.  There  was  too  much  express  authority  against 
combinations  in  restraint  of  trade  for  that. 

Perhaps  every  member  would  live  up  to  his  agreement ;  but  there 
was  no  remedy  at  law  if  anyone  did  not.  Perhaps  the  proceeds  of 
the  pooling  would  be  fairly  divided;  but  the  court  would  not  order 
an  accounting.  And  experience  showed  again  and  again  that,  with- 
out legal  obligation,  there  were  always  members  in  any  such  pool 
treacherous  enough  to  break  it.  Moreover,  there  was  the  corpora- 
tion law  to  reckon  with  which  has  always  held  it  contrary  to  policy 
for  corporations  to  surrender  their  independence  by  entering  a  pool. 
The  courts  have  held  that  for  no  purpose,  legal  or  illegal,  could  cor- 
porations be  members  of  a  partnership ;  that  they  could  not  carry  on 
their  business  in  common.^' 

It  is  further  to  be  noted  that  when  a  combination  in  restraint  of 
trade  is  once  proved  to  be  such,  outlawry  is  declared.  It  can  bring 
no  suit  against  those  in  it ;  neither  can  they  sue  it.  The  courts  will 
have  nothing  to  do  with  either  association  or  associates.  This  is  the 
penalty,  that  the  loss  must  lie  where  it  falls;  and  this  policy  is  in 

"* Adapted  from  Control  of  the  Market,  142-164.  Copyright  by  the  author. 
Published  by  Moffat,  Yard  &  Co.  (1911). 

*Mills  V.  Upton,  10  Gray  582 ;  Mallory  v.  Honour  Oil  Works,  86  Tenn.  5Q6- 


CAPITALISTIC  MONOPOLY  431 

itself  often  one  of  the  strongest  of  deterrents.  Thus  any  member  of 
the  association  may  withdraw  when  it  suits  his  interest  to  do  so,  a 
result  that  minimizes  the  harm  that  such  a  combination  may  effect. 
For  experience  shows  that  the  result  is  that  competition  goes  on  sur- 
reptitiously, despite  the  agreement,  since  every  active  member  is 
strengthening  his  position  in  preparation  for  an  ultimate  withdrawal. 
And  at  the  psychological  moment  some  member,  who  has  accumu- 
lated a  large  stock  while  production  has  been  curtailed,  will  sell  out 
at  near  to  the  top  price  and  break  the  market,  thus  causing  his  asso- 
ciates irreparable  losses. 

Such  was  the  state  of  the  law  when  the  trust  agreement  was  dis- 
covered by  a  startled  community.  The  features  of  this  scheme  are 
well  known.  All  the  shares  of  the  capital  stock  of  all  the  confeder- 
ating corporations  are  transferred  to  a  board  of  trustees.  These 
issue  trust  certificates  in  lieu  of  these  shares,  thus  reserving  the  vot- 
ing rights  in  all  the  corporations.  As  a  cover  for  the  scheme  all  of 
the  corporations  remain  in  existence;  and  in  form  each  conducts 
its  own  business  without  any  cross  agreements  among  themselves. 

From  the  point  of  view  of  those  who  had  on  foot  a  scheme  to 
monopolize,  this  trust  device  was  excellent.  It  was  centralized  in 
its  control  and  secret  in  its  doings.  It  left  the  power  of  control  with 
the  inner  circle,  while  enabling  them  to  market  as  many  securities 
as  they  pleased.  But  adverse  court  decisions  robbed  the  agreement 
of  its  effectiveness.-®  It  was  held  against  the  law  governing  corpora- 
tions in  that  it  was  beyond  its  powers  for  a  company  thus  to  surren- 
der its  independence.  It  was  also  a  void  arrangement  by  the  law 
against  combinations  in  restraint  of  trade.  The  courts  looked 
through  the  outer  forms  into  the  inner  facts.  This  was  fortunate 
for  from  the  point  of  view  of  the  state  the  scheme  was  almost  be- 
yond control  as  its  accounts  could  be  juggled  and  responsibility  for 
wrongdoing  could  not  be  fixed. 

A  transition  period  of  a  few  years  followed  upon  the  dissolution 
of  the  trusts.  The  original  owners  still  had  the  properties ;  and  the 
common  danger  held  them  together,  temporarily  at  least.  Mean- 
while the  lawyers  were  casting  about  for  some  new  scheme  for  com- 
bining interests  that  would  have  legal  sanction.  The  first  schemes 
were  rather  obvious  attempts  to  make  use  of  some  established  ar- 
rangement as  a  cover  for  combination.  Rather  absurd  these  were, 
doomed  to  early  exposure  from  the  outset.  What  could  not  be  done 
directly  could  not  be  brought  about  by  indirection.  The  imperative 
need  was  a  device  that  would  stand  the  test  of  legality.  It  is  true 
that  without  legal  sanction  much  may  be  done  under  a  gentleman's 

^People  V.  North  River  Sugar  Refining  Company,  121  N.  Y.  582 ;  State  v. 
Standard  Oil  Company,  49  Ohio  St.  I37. 


432  CURRENT  ECONOMIC  PROBLEMS 

agreement ;  but  without  legality  in  organization  there  is  no  security. 
Nor  can  there  be  any  permanence  unless  the  arrangement  is  perpet- 
ual. And,  further,  without  security  and  permanence,  there  can  be 
no  issue  of  securities  or  market  for  them. 

Eventually  there  was  evolved  the  idea  of  a  holding  corporation, 
a  new  central  body  which  should  acquire  a  majority  of  the  stocks  of 
the  constituent  companies.  The  holding  company  possessed  possi- 
bilities of  manipulation  pleasant  to  contemplate;  the  marketable  is- 
sues could  be  doubled  by  making  the  stock  of  the  holding  corporation 
twice  that  of  the  constituent  companies;  and  since  the  operation  of 
the  business  could  be  concealed  between  the  accounts  of  the  holding 
company  and  the  constituent  companies,  there  would  be  nothing  to 
fear  from  the  publication  of  formal  statements. 

There  were  obviously  legal  difficulties.  In  most  states  by  the 
common  law  it  was  beyond  the  powers  of  one  corporation  to  hold 
the  stock  of  another  for  the  purpose  of  operation.  In  some  states, 
however,  statute  law  or  special  charter  permitted  corporations  to  be 
organized  to  hold  the  stocks  of  other  corporations.  But  this  was  at 
best  a  solution  of  only  one  of  the  difficulties ;  another  remained. 
Granted  that  the  corporation  was  enabled  to  act  without  violation 
of  the  corporation  law,  there  was  the  anti-trust  law  still  to  reckon 
with. 

So  it  came  to  be  recognized  that  there  was  a  safer  way,  if  one 
chose  to  take  it.  The  approved  form  among  lawyers  during  the  last 
few  years  for  making  a  consolidation  of  interests  is  by  the  formation 
of  a  single  gigantic  corporation  intended  to  take  over  by  purchase  all 
the  different  concerns  that  are  to  be  brought  together.  It  has  been^ 
ruled  that  "corporations  are  empowered  to  purchase,  hold,  and  use 
property  appropriate  to  their  business.  Under  such  powers  it  is 
obvious  that  a  corporation  may  purchase  the  plant  and  business  of 
competing  individuals  and  concerns."^^  But  this  is  not  unquestioned 
law  by  any  means.  A  court  of  equal  authority  has  said,  "There  is 
no  magic  in  a  corporate  organization  which  can  purge  the  trust 
scheme  of  its' illegality,  and  it  remains  as  essentially  opposed  to  the 
principles  of  sound  public  policy  as  when  the  trust  was  in  existence. 
It  was  illegal  before  and  is  illegal  still,  and  for  the  same  reasons." 

From  step  to  step  in  this  succession  there  is  a  movement  toward 
integration.  Now  that  the  end  of  economic  evolution  has  been 
reached  in  a  single  corporation,  the  law  against  combinations  in  re- 
straint of  trade  may  perhaps  cease  to  operate.  Now  the  state  may 
impose  such  special  regulation  upon  these  industrial  concerns  as  the 
situation  requires.  The  problem  is  therefore  much  simplified  since 
the  time  of  the  trusts.     It  has  been  reduced  to  its  lowest  terms  by 

"Trenton  Potteries  Company  v.  Oliphant,  58  N.  J.  Eq.  507. 


CAPITALISTIC  MONOPOLY  433 

the  activity  of  the  law  in  insisting  that  all  combinations  of  ever}- 
stripe  should  be  destroyed.  The  question  then  emerges,  Shall  these 
great  corporations  be  destroyed  or  shall  they  be  regulated?  That, 
it  is  submitted,  is  the  trust  problem  in  its  latest  phase. 

214.— The  Sherman  Anti-Trust  Act" 

Section  i.  Every  contract,  combination  in  the  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  among 
the  several  states,  or  mth  foreign  nations,  is  hereby  declared  to 
be  illegal.  Every  person  who  shall  make  any  such  contract  or  en- 
gage in  any  such  combination  or  conspiracy,  shall  be  deemed  guilty 
of  a  misdemeanor,  and,  on  conviction  thereof,  shall  be  punished 
by  fine  not  exceeding  five  thousand  dollars,  or  by  imprisonment 
not  exceeding  one  year,  or  by  both  said  punishments,  in  the  dis- 
cretion of  the  court. 

Section  2.  Every  person  who  shall  monopolize,  or  attempt  to 
monopolize,  or  combine  or  conspire  with  any  other  person  or  per- 
sons, to  monopolize  any  part  of  the  trade  or  commerce  among  the 
several  states,  or  with  foreign  nations,  shall  be  deemed  guilty  of 
a  misdemeanor,  and,  on  conviction  thereof,  shall  be  punished  by 
fine  not  exceeding  five  thousand  dollars,  or  by  imprisonment  not  ex- 
ceeding one  year,  or  by  both  said  punishments,  in  the  discretion  of 
the  court. 

Section  3.  Every  contract,  combination  in  the  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  in  any 
territory  of  the  United  States  or  in  the  District  of  Columbia,  or  in 
restraint  of  trade  or  commerce  between  any  such  territory  and  an- 
other, or  between  any  such  territory  or  territories  and  any  state  or 
states  or  the  District  of  Columbia,  or  with  foreign  nations,  or  be- 
tween the  District  of  Columbia  and  any  state  or  states  or  foreign 
nations,  is  hereby  declared  illegal.  Every  person  who  shall  make 
any  such  contract  or  engage  in  any  such  combination  or  conspiracy 
shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  conviction  thereof, 
shall  be  punished  by  fine  not  exceeding  five  thousand  dollars,  or  by 
imprisonment  not  exceeding  one  year,  or  by  both  said  punishments 
in  the  discretion  of  the  court. 

Section  7.  Any  person  who  shall  be  injured  in  his  business  or 
property  by  any  other  person  or  corporation  by  reason  of  anything 
forbidden  or  declared  to  be  unlawful  by  this  act,  may  sue  therefor 
in  any  circuit  court  of  the  United  States  in  the  district  in  which  the 

*'From  26  U.  S.  Statutes  209  (1900).,  There  are  eight  sections.  The 
five  sections  given  here  form  the  essential  part. 


434  CURRENT  ECONOMIC  PROBLEMS 

defendant  resides  or  is  found,  without  respect  to  the  amount  in  con- 
troversy, and  shall  recover  threefold  the  damages  by  him  sustained, 
and  the  costs  of  the  suit,  including  a  reasonable  attorney's  fee. 

Section  8.  That  the  word  "person"  or  "persons,"  wherever 
used  in  this  act,  shall  be  deemed  to  include  corporations  and  asso- 
ciations existing  under  or  authorized  by  the  laws  of  the  United 
States,  the  laws  of  any  of  the  territories,  the  laws  of  any  state,  or 
the  laws  of  any  foreign  country. 

215.     The  Meaning  of  Restraint  of  Trade^^ 

In  substance,  the  propositions  urged  by  the  Government  are 
reducible  to  this :  That  the  language  of  the  statute  embraces  every 
contract,  combination,  etc.,  in  restraint  of  trade,  and  hence  its  text 
leaves  no  room  for  the  exercise  of  judgment,  but  simply  imposes 
the  plain  duty  of  applying  its  prohibitions  to  every  case  within  its 
literal  language.  The  error  involved  lies  in  assuming  the  matter 
to  be  decided.  This  is  true  because,  as  the  acts  which  may  come 
under  the  classes  stated  in  the  first  section  and  the  restraint  of  trade 
to  which  that  section  applies  are  not  specifically  enumerated  or  de- 
fined, it  is  obvious  that  judgment  must  in  every  case  be  called  into 
play  in  order  to  determine  whether  a  particular  act  is  embraced 
within  the  statutor>'  classes  and  whether,  if  the  act  is  within  such 
classes,  its  nature  or  eflfect  causes  it  to  be  a  restraint  of  trade  within 
the  intendment  of  the  act.  To  hold  to  the  contrary  would  require 
the  conclusion  either  that  every  contract,  act,  or  combination  of  any 
kind  or  nature,  whether  it  operated  a  restraint  on  trade  or  not,  was 
within  the  statute,  and  thus  the  statute  would  be  destructive  of  all 
right  to  contract  or  agree  or  combine  in  any  respect  whatever  as  to 
subjects  embraced  in  interstate  trade  or  commerce,  or  if  this  con- 
clusion were  not  reached,  then  the  contention  would  require  it  to 
be  held  that  as  the  statute  did  not  define  the  things  to  which  it  re- 
lated and  excluded  resort  to  the  only  means  to  which  the  acts  to 
which  it  relates  could  be  ascertained — the  light  of  reason — the  en- 
forcement of  the  statute  was  impossible  because  of  its  uncertainty. 
The  merely  generic  enumeration  which  the  statute  makes  of  the 
acts  to  which  it  refers  and  the  absence  of  any  definition  of  restraint 

^•Adapted  from  the  opinion  of  the  court  in  the  case  of  The  Standard  Oil 
Company  of  New  Jersey  v.  United  States,  221  U.  S.  i  (1911).  By  this  decision 
the  Standard  Oil  Company  of  New  Jersey  was  ordered  "dissolved."  The 
significance  of  the  decision  lies  in  the  distinction  made  by  the  court  between 
"reasonable"  and  "unreasonable"  restraint  of  trade,  and  the  insistence  that 
the  Sherman  act  was  meant  to  apply  to  the  latter  exclusively.  This  is  the 
subject  of  discussion  in  the  selection  given  here.  The  Standard,  of  course, 
was  found  guilty  of  "unreasonable"  restraint  of  trade. 


CAPITALISTIC  MONOPOLY  435 

of  trade  as  used  in  the  statute  leaves  room  for  but  one  conclusion, 
which  is  that  it  was  expressly  designed  not  to  unduly  limit  the  ap- 
plication of  the  act  by  precise  definition,  but  while  clearly  fixing  a 
standard — that  is,  by  defining  the  ulterior  boundaries  which  could 
not  be  transgressed  with  impunity — ^to  leave  it  to  be  determined  by 
the  light  of  reason,  guided  by  the  principles  of  law  and  the  duty 
to  apply  and  enforce  the  public  policy  embodied  in  the  statute  in 
every  given  case,  whether  any  particular  act  or  contract  was  within 
the  contemplation  of  the  statute. 

216.     Dissolution  of  the  Standard  Oil  Company 

Standard  Oil  Company  (of  New  Jersey) 
26  Broadway, 

New  York,  July  28,  191 1. 
To  the  Stockholders  of  the 

Standard  Oil  Company  (of  New  Jersey)  : 

Obedience  to  the  final  Decree  in  the  case  of  the  United  States 
against  the  Standard  Oil  Company  (of  New  Jersey),  and  others, 
requires  this  Company,  to  distribute,  or  cause  to  be  distributed, 
ratably,  to  its  stockholders  the  shares  of  stock  of  the  following  cor- 
porations, which  it  owns  directly  or  through  its  ownership  of  stock 
of  the  National  Transit  Company,  to'wit:  Anglo-American  Oil  Com- 
pany, Limited;  The  Atlantic  Refining  Company;  Bome-Scrymser 
Company;  The  Buckeye  Pipe  Line  Company;  Chesebrough  Manu- 
facturing Company,  Consolidated;  Colonial  Oil  Company;  Con- 
tinental Oil  Company;  The  Crescent  Pipe  Line  Company;  Cumber- 
land Pipe  Line  Company,  Incorporated;  The  Eureka  Pipe  Line 
Company ;  Galena-Signal  Oil  Company ;  Indiana  Pipe  Line  Com- 
pany; National  Transit  Company;  New  York  Transit  Company; 
Northern  Pipe  Line  Company ;  The  Ohio  Oil  Company ;  The  Prairie 
Oil  and  Gas  Company;  The  Solar  Refining  Company;  Southern 
Pipe  Line  Company ;  South  Perm  Oil  Company ;  South  West  Penn- 
sylvania Pipe  Lines;  Standard  Oil  Company  (California);  Stand- 
ard Oil  Company  (Indiana)  ;  The  Standard  Oil  Company  (Kan- 
sas) ;  Standard  Oil  Company  (Kentucky)  ;  Standard  Oil  Company 
( Nebraska)  ;  Standard  Oil  Company  of  New  York ;  The  Standard 
Oil  Company  (Ohio)  ;  Swan  &  Finch  Company;  Union  Tank  Line 
Company;  Vacuum  Oil  Company;  Washington  Oil  Company; 
Waters-Pierce  Oil  Company. 

Such  distribution  will  be  made  to  the  stockholders  of  the  Stand- 
ard Oil  Company  (of  New  Jersey)  of  record  on  the  ist  day  of 


436  CURRENT  ECONOMIC  PROBLEMS 

September,  191 1 ;  and,  for  that  purpose,  the  transfer  books  of  the 
Company  will  be  closed  on  the  31st  day  of  August,  191 1,  at  3  o'clock 
P.  M.,  and  kept  closed  until  the  date  when  said  stocks  are  ready 
for  distribution,  which  it  is  expected  will  be  about  December  i, 
1911. 

Notice  of  the  date  when  said  stocks  are  to  be  distributed  and  of 
the  re-opening  of  the  books  will  be  duly  given. 

Yours  very  truly, 

H.  C.  Folger,  Jr., 

Secretary. 

217.     The  Result  of  the  Dissolutions^" 

BY  ARTHUR  JEROME;  EDDY 

Everybody  knows  what  disintegration  means,  it  means  disso- 
lution— "smashing  'em,"  in  the  language  of  the  street. 

The  Standard  Oil  Company  has  been  disintegrated  into  some 
thirty-five,  more  or  less — chiefly  less — independent  and  supposedly 
competing  companies. 

The  Tobacco  Company  has  been  disintegrated  into  fourteen, 
more  or  less,  independent  and — supposedly — competing  units. 

The  net  result  to  the  public  so  far  has  been  higher  prices  for 
many  of  the  products  of  the  cftie  and  no  lower  prices  for  any  of 
the  products  of  the  other. 

The  net  result  to  many  small  stockholders  has  been  losses. 

The  net  result  to  "insiders" — the  men  against  whom  public 
clamor  was  raised — has  been  golden  opportunities  for  profit  in  the 
buying  and  selling  of  subsidiary  stocks  long  before  stockholders 
and  the  public  could  possibly  form  any  accurate  notions  of  their 
real  value. 

To  illustrate — when  the  Standard  Oil  Company  of  New  Jersey 
— the  trust — was  dissolved  by  order  of  court  the  stockholders  of 
that  company  received  pro  rata  fractional  interests  in  all  the  sub- 
sidiary companies,  and  for  the  first  time  thousands  of  men  and 
women  all  over  the  country  learned  of  the  existence  of  those  thirty- 
five  companies.  By  no  possibility  could  these  scattered  stockholders 
form  accurate  opinions  regarding  the  values  of  the  fractional  shares 
issued  to  them;  only  the  men  in  control  of  the  industry  were  in  a 
position  to  know.  What  has  been  the  result?  The  stockholders 
and  public  have  sold  and  bought  in  ignorance,  losing  both  ways. 

•"Adapted  from  The  New  Competition,  258-260.  Copyright  by  D.  Apple- 
ton  &  Co.  (1912). 


CAPITALISTIC  MONOPOLY  437 

Take  the  Standard  Oil  Company  of  Indiana,  one  of  the  subsidiary 
companies.  It  was  capitaHzed  at  $1,000,000;  the  amount  cut  no 
figure  so  long  as  all  its  stock  was  held  by  the  trust,  but  when  the 
trust  was  dissolved  its  many  stockholders  received  each  his  frac- 
tional pro  rata  share  in  the  Indiana  Company.  There  was  a  gen- 
eral impression  the  stock  of  this  company  was  worth  far  more 
than  par,  but  how  much  ?  Only  the  insiders  could  tell.  As  a  result 
many  stockholders  who  were  in  the  dark  sold  their  interests  at  less 
than  a  fifth  of  what  the  stock  sold  for  inside  a  few  wedcs. 

A  few  days  ago  the  Indiana  Company  voted  to  increase  its  cap- 
ital stock  from  one  million  dollars  to  thirty  millions  and  to  distribute 
the  $29,000,000  to  its  stockholders  as  a  stock  dividend,  and  it  now 
appears  that  the  company  is  earning  at  least  ten  millions  a  year,  or 
33  1/3  P^r  c^"^  on  the  new  capitalization,  but  it  is  stated  in  the 
press  the  "officers  refuse  to  give  any  information  on  this  point." 

Disintegration  of  trusts  and  large  corporations  simply- because 
they  are  larg^e  is  a  senseless  proposition,  because  both  are  here  to 
stay  in  some  form.  The  Sherman  Law  was  passed  in  1890.  For 
more  than  ten  years  few  attempts  were  made  to  enforce  it  against 
large  corporations.  Then,  in  response  to  popular  clamor,  due  to 
many  flagrant  abuses,  came  a  period  of  indiscriminate  "trust-bust- 
ing." Already  there  are  signs  of  reaction ;  the  pendulum  is  swing- 
ing back ;  it  is  found  the  Sherman  Law  hits  large  and  small,  good 
and  bad,  labor  unions  and  capital  unions  alike. 

218.     An  Appraisal  of  the  Sherman  Act" 

BY  ALLYN  A.  YOUNG 

The  Sherman  act  is  a  general  statute,  declaratory  of  public 
policy.  As  such  it  must  be  judged  by  (i)  the  soundness  of  the 
policy  which  it  declares,  (2)  the  accuracy  and  completeness  with 
which  it  declares  that  public  policy,  and  (3)  the  adequacy  of  the 
mechanism  which  it  provides  for  making  that  policy  effective. 

I.  There  can  be  little  doubt  that  the  public  policy  which  the 
act  was  intended  to  embody  is  that  competition  should  be  maintained, 
artificial  monopoly  destroyed,  and  its  growth  prevented.  It  is  clear 
from  the  debates  attending  its  enactment  that  its  hostility  toward 
large  industrial  combinations  was  especially  directed  against  (i) 
their  supposed  power  over  prices  and  (2)  their  aggressive  sup- 
pression of  competition.     Whatever  the  economic  advantages  of 

•'^Adapted  from  "The  Sherman  Act  and  the  New  Anti-Trust  Legislation," 
in  the  Journal  of  Political  Economy,  XXIII,  213-220 '(1915). 


438  CURRENT  ECONOMIC  PROBLEMS 

monopoly  may  be,  there  will  be  little  question  of  the  soundness  of 
the  policy  which  attempts  to  deprive  it  of  its  power  for  evil  in  these 
two  particulars.^- 

2.  Is  the  Sherman  act  an  accurate  expression  of  the  public  pol- 
icy which  it  seeks  to  declare?  If  by  accuracy  is  meant  precision,  it 
has  little  of  it.  It  was,  in  its  inception,  a  lawyer's  statute,  speaking 
in  the  language  of  the  common  law.  At  the  time  it  was  evident  that 
it  would  be  difficult  for  Congress  to  come  to  an  agreement  on  par- 
ticulars. Moreover,  its  general  phrases  were  chosen  intentionally, 
we  are  told  by  one  of  its  f  ramers,  in  order  that  the  responsibility  of 
determining  its  exact  scope  might  be  left  to  the  courts.  For  seven 
years  its  interpretation  was  uncertain.  The  decisions  of  the  lower 
court  were  conflicting,  and  the  Supreme  Court's  holdings  purely 
negative.  Even  after  an  utterance  from  this  court,  the  words  "re- 
straint of  trade"  still  remained  to  be  defined,  and  in  the  next  thirteen 
years  the  work  of  definition  progressed  only  so  far  as  the  particular 
cases  decided  were  typical  of  the  classes  of  cases  possible.  The 
standard  of  public  policy  outlined  in  the  Standard  Oil  decision  was 
the  first  general  criterion  of  the  scope  of  the  act.  There  is  little 
doubt  that  the  present  interpretation  of  the  statute  is  in  harmopy 
with  the  purposes  which  were  in  mind  at  the  time  of  its  enactment. 
There  is  now  no  question  that  if  the  purposes  of  combination  are 
monopoly,  they  come  within  the  condemnation  of  the  act.  There 
is  no  reason  to  think,  for  example,  that  price  agreements  and  agree- 
ments to  restrict  output,  whether  of  local  or  general  scope,  are  not 
as  illegal  now  as  they  have  been  at  any  time. 

As  a  general  expression  of  the  public  policy  which  it  is  supposed 
to  embody  the  Sherman  act  is  adequate.  The  difficulty  is  that  it 
goes  too  far.  In  the  first  place,  it  is  so  worded  that  it  is  used  as 
a  weapon  against  strikes,  boycotts,  and  other  concerted  efforts  to 

■^Most  of  the  more  weighty  discussions  of  the  economic  advantages  of 
monopoly  have  to  do  with  the  effect  of  monopoly  upon  the  aggregate  produc- 
tion of  wealth  measured  in  terms  either  of  subjective  satisfaction  or  of  objec- 
tive commodity  units.  Even  from  this  point  of  view  the  case  for  monopoly 
is  exceedingly  dubious  and,  at  best,  has  a  validity  that  is  restricted  and  con- 
ditioned in  many  ways.  Moreover  such  considerations  are  relatively  unim- 
portant compared  with  matters  like  the  effect  of  monopoly  upon  distribu- 
tion, upon  the  scope  for  individual  initiative,  upon  economic  opportunity  in 
general,  and  upon  a  host  of  social  and  political  relations.  In  short,  it  is  a 
question  less  of  the  relative  "economy"  of  monopoly  or  competition  than  of 
the  kind  of  economic  organization  best  calculated  to  give  us  the  kind  of 
society  we  want.  Until  our  general  social  ideals  are  radically  changed,  it 
will  take  more  than  economic  analysis  to  prove  that  it  would  be  sound  public 
policy  to  permit  monopoly  in  that  part  of  the  industrial  field  where  compe- 
tition is  possible. 


CAPITAUSTIC  MONOPOLY  439 

interfere  with  the  conduct  of  any  business  undertaking  which  ships 
its  goods  across  state  lines  or  to  other  countries.  These  things  may 
be  undesirable;  very  likely  some  of  them  are.  But  they  are  so  far 
out  of  line  with  the  other  things  condemned  by  the  Sherman  act, 
and  in  most  instances  have  so  little  relation  to  "monopolizing"  that 
they  should  be  cut  from  the  list  of  offenses  condemned  by  the  act. 
In  the  second  place,  the  application  of  the  Sherman  act  to  railroads 
is  inconsistent  with  the  standards  of  public  policy  embodied  in  the 
Interstate  Commerce  act.  We  regulate  railroad  rates  and  services 
on  the  assumption  that  railroads  are  natural  monopolies,  and  that 
combinations  or  rate  agreements  are  inevitable.  But  at  the  same 
time  we  condemn  railroad  combinations  and  rate  agreements,  and, 
as  in  the  New  Haven  case,  bring  criminal  indictments  against  the 
men  responsible  for  such  combinations.  From  railroads  we  exact 
the  observance  of  two  mutually  inconsistent  standards  of  morality. 
The  real  evils  in  railway  combinations  are  matters  of  corporation 
finance.  These  should  be  dealt  with  by  statutes  appropriate  to  the 
purpose;  and  the  Sherman  act  should  be  so  amended  as  to  be  rele- 
gated to  its  proper  field  of  preventable  industrial  monopolizing. 

Finally,  there  comes  the  question  of  whether  even  within  the 
industrial  field  we  want  to  prohibit  monopoly  as  well  as  aggressive 
monopolizing.  Probably  a  monopoly  achieved  merely  by  the  su- 
perior efficacy  of  a  formerly  competitive  business  unit  (if  such  were 
possible)  would  not  be  condemned  by  the  courts  as  a  violation  of 
the  Sherman  act.  And  what  is  the  status  of  a  monopoly  built  up 
merely  by  the  peaceful  union  of  absorption  of  competitive  units? 
In  such  a  case  on  which  side  public  policy  lies  it  is  hard  to  determine. 
3.  Does  the  Sherman  act  provide  an  efficient  mechanism  for 
achieving  its  own  ends?  That  its  criminal  features  have  been  rela- 
tively ineffective  is  generally  admitted.  Furthermore,  it  has  been 
found  in  practice  that  it  is  very  difficult  to  secure  a  criminal  convic- 
tion from  a  jury  for  an  offense  so  general,  so  abstract,  so  tainted 
with  the  general  and  customary  imputation  of  immorality  as  "re- 
straint of  trade"  or  "monopolizing."  There  is  no  reason  to  believe 
that  it  will  ever  be  easy  to  secure  convictions  for  restraint  of  trade 
in  cases  where  the  several  steps  taken  in  the  creation  of  the  restraint 
are  unobjectionable  except  as  a  part  of  a  general  scheme.  As  it  is 
the  statute  provides  only  an  indirect  and  uncertain  way  of  penalizing 
unfair  competitive  methods.  I  see  no  reason  why  the  criminal  rem- 
edies of  the  Sherman  act  should  be  retained. 


440  CURRENT  ECONOMIC  PROBLEMS 

The  proceedings  in  equity  for  the  dissolution  of  a  combination 
have,  on  the  contrary,  proved  to  be  increasingly  effective.  It  is  con- 
tended by  many  that  the  enforced  dissolution  of  a  combination 
means  generally  a  mere  change  in  form ;  that  we  are  merely  hunting 
the  quarry  from  tree  to  tree.  But  neither  in  transportation  nor  in 
industry  does  it  clearly  appear  that  the  newer  and  more  unified  forms 
of  consolidation  would  not  have  largely  displaced  the  old,  even  if 
the  movement  had  not  been  hastened  by  legislations  and  decisions 
under  the  common  law.  Among  other  things  tending  to  this  end 
are  the  various  strategic  advantages  of  the  consolidated  unit,  and 
the  permanency  and  dependability  of  the  newer  forms  of  combina- 
tion, making  possible  the  adoption  of  business  policies  based  on  long- 
time considerations.  It  is  more  than  possible  that  after  a  long  chase 
the  quarry  has  at  last  been  driven  into  a  corner. 

Is  it  proved  that  the  mere  dissolution  of  industrial  combination 
accomplishes  anything,  especially  in  cases  where  the  equities  in  the 
combination  are  made  the  basis  of  a  pro  rata  distribution  of  the 
equities  in  its  constituent  parts?  Only  a  few  general  conclusions 
can  be  stated:  (i)  The  results  must  vary  with  the  nature  of  the 
business  and  the  degree  to  which  the  aggressive  suppression  of  com- 
petition played  a  part  in  maintaining  competitive  conditions.  (2) 
Dissolution  rarely  comes  early  enough — not  until  the  monopolistic 
"situation  has  become  more  or  less  crystallized.  (3)  The  operation 
of  the  statute  is  intermittent.  Dissolution  should  be  carefully  fol- 
lowed up,  and  every  step  in  the  process  of  restoring  normal  condi- 
tions should  be  carefully  watched.  This  requires  administrative 
machinery. 

In  its  own  field  the  Sherman  act  has  a  value  all  its  own.  No 
matter  how  carefully  drawn  the  rules  of  the  game  may  be,  no  mat- 
ter how  high  the  level  set  by  the  law  of  competition,  new  business 
conditions  are  bound  to  arise,  not  covered  by  specific  statutes,  and 
yet  contrary  to  the  generally  accepted  public  policy  of  the  main- 
tenance of  competition  within  its  own  proper  field.  The  Sherman 
law,  as  a  general  declaration  of  public  policy,  has  an  elasticity  and 
adaptability  to  new  situations  of  all  kinds  not  possible  to  legislation 
of  a  more  specific  sort.  Its  declaration  of  public  policy  is  general 
enough  so  that  it  may  gradually  grow  in  meaning  and  change  in  ap- 
plication through  judicial  decision  as  the  common  law  has  grown 
and  changed.  So  long  as  the  preservation  of  competition  in  that 
large  part  of  the  industrial  field  in  which  it  is  feasible  is  public 
policy,  why  should  we  not,  through  such  a  statute,  continue  to  give 


CAPITALISTIC  MONOPOLY  441 

the  federal  courts  jurisdiction  in  cases  involving  the  assertion  of 
that  public  policy  ?  But  it  needs  amendment  in  the  ways  which  have 
been  indicated. 

219.     Provisions  of  the  Clayton  Act^' 

The  Clayton  act  provides : 

A.  That  it  shall  be  unlawful  for  any  person  engaged  in  com- 
merce to  make  discriminations  in  prices  between  different  purchasers 
of  commodities  sold  for  use,  consumption,  or  resale,  where  the  effect 
of  the  discrimination  may  be  substantially  to  lessen  competition  or 
tend  to  the  creation  of  a  monopoly. 

B.  That  it  shall  be  unlawful  for  any  person  engaged  in  Com- 
merce to  lease,  sell,  or  contract  for  the  sale  of  goods,  patented  or  un- 
patented, or  to  fix  a  price  charged  therefor,  or  discount,  or  rebate, 
upon  such  price,  conditioned  upon  the  lessee  or  purchaser  thereof, 
not  using  or  dealing  in  goods,  of  competitors  of  the  lessor  or  seller, 
where  the  effect  may  be  substantially  to  lessen  competition,  or  tend 
to  create  a  monopoly. 

C.  That  no  corporation  shall  acquire  the  whole  or  any  part  of 
the  stock  or  other  share  capital  of  another  corporation,  or  two  or 
more  corporations,  where  the  effect  may  be  substantially  to  lessen 
competition,  to  restrain  commerce,  or  to  tend  to  create  a  monopoly. 

D.  From  and  after  two  years  from  the  date  of  the  approval  of 
the  act : 

1.  No  person  shall  be  a  director  or  other  officer  or  employee  of 
more  than  one  bank  organized  under  the  laws  of  the  United  States 
if  any  one  of  them  is  above  a  certain  size;  and  no  private  banker  or 
person  who  is  director  in  any  bank  or  trust  company  organized 
under  the  laws  of  any  state,  and  above  a  certain  size,  shall  be  eligible 
as  a  director  of  any  bank  or  banking  association  incorporated  or 
operating' under  the  laws  of  the  United  States. 

2.  No  bank  organized  or  operating  under  the  laws  of  the 
United  States  in  any  city,  incorporated  town,  or  village,  of  more  than 
200,000  inhabitants,  shall  have  as  director  or  officer  or  employee  any 
private  banker  or  any  director  or  any  other  officer  or  employee  of 
any  other  bank  located  in  the  same  place. 

3.  No  person  shall  be  a  director  at  the  same  time  in  any  two  or 
more  corporations  (other  than  banks  and  common  carriers)  engaged 
in  interstate  commerce,  any  one  of  which  has  capital,  surplus,  and 

"Only  a  few  of  the  provisions  of  the  law  are  given,  and  these,  because 
of  their  great  length,  are  presented  in  summary  form.     The  adaptation  is 
.  that  of  W.  H.  S.  Stevens,  in  "The  Clayton  Act,"  in  the  American  Economic 
Review,  V,  40-41.    Copyright  (1915). 


442  CURRENT  ECONOMIC  PROBLEMS 

undivided  profits  aggregating  more  than  $1,000,000,  if  such  cor- 
porations have  been  competitors  so  that  the  eHmination  of  compe- 
tition between  them  will  constitute  a  violation  of  any  of  the  pro- 
visions of  the  anti-trust  laws. 

220.     The  Trade  Commission  and  Clayton  Acts^* 

BY  W.  H.  S.   STEVENS 

Two  acts  have  recently  been  passed  making  iniportant  changes 
in  the  federal  law  as  it  applies  to  trusts  and  combinations.  These 
measures  are  generally  known  as  the  Trade  Commission  Act  and  the 
Clayton  Act.^^  With  reference  to  this  legislation  the  following  con-' 
elusions  may  be  drawn : 

1.  The  Trade  Commission  is  a  body  with  wide  powers  of  in- 
vestigation and  limited  administrative  authority. 

2.  Several  of  its  investigatory  powers  have  to  a  noticeable  de- 
gree been  previously  exercised  by  the  Bureau  of  Corporations  or 
the  Department  of  Justice.  But  the  investigatory  authority  of  the 
commission  is  considerably  greater  than  that  possessed  in  the  past 
by  both  of  these  other  agencies. 

3.  The  commission  is  given  powers  of  making  recommenda- 
tions to  the  Attorney-General  for  the  readjustment  of  the  business 
of  corporations  violating  the  anti-trust  acts  and  also  of  ascertaining 
and  reporting  appropriate  decrees  in  equity  suits  brought  by  or  un- 
der the  Attorney-General.  But  the  exercise  of  these  functions  de- 
pends in  the  first  place  upon  the  application  of  the  Attorney-General 
and  in  the  second  case  upon  the  reference  of  the  suit  by  the  courts 
to  the  commission. 

4.  The  Trade  Commission  act  gave  the  commission  a  most  im- 
portant administrative  authority  in  providing  that  the  body  should 
prevent  unfair  methods  of  competition.  The  Clayton  measure  fur- 
ther extended  this  authority  in  giving  it  jurisdiction  to  enforce  the 
prohibitions  against  holding  companies  and  interlocking  directo- 
rates. It  also  gave  it  jurisdiction  to  prevent  price  discriminations 
and  exclusive  and  tieing  agreements. 

5.  The  enforcement  of  the  principal  prohibitions  of  the  Clay- 
ton act  and  of  the  unfair  competition  section  of  the  Trade  Commis- 
sion act  is  entrusted  to  the  commission  by  the  following  method  of 
procedure.  The  commission  conducts  a  hearing  and  makes  an  order 
against  a  practice,  a  review  of  which  may  be  had  by  the  party 

**Adapted  from  "The  Clayton  Act,"  in  the  American  Economic  Review, 
V,  51-54.    Copyright  (1915).  ^      ^     • 

"The  former  measure  became  a  law  when  the  President  attached  his  sig- 
nature to  it  September  26,  1914,  and  the  latter  on  October  16,  1914. 


CAPITALISTIC  MONOPOLY  443 

against  whom  it  is  made  in  the  Circuit  Court  of  Appeals.  If  the 
order  is  not  obeyed  the  commission  apphes  to  the  same  court  for 
enforcement,  and  the  jurisdiction  of  the  court  in  both  cases  is  ex- 
clusive and  final. 

6.  A  concurrent  justification  has  been  vested  in  the  district 
courts  to  enforce  the  prohibitions  against  price  discriminations,  ex- 
clusive and  tieing  agreements,  holding  corporations,  and  interlock- 
ing directorates.  Thus  it  is  to  be  noted  that  there  are  two  courts  of 
appeal :  the  Circuit  Court  of  Appeals  when  the  Trade  Commission 
makes  orders  against  these  practices,  the  Supreme  Court  when  the 
district  court  enjoins  them. 

7.  The  new  laws  rely  primarily  upon  contempt  proceedings  and 
the  penalties  therefor  in  enforcing  their  prohibitions. 

8.  The  elimination  of  the  criminal  penalties  from  several  sec- 
tions of  the  Clayton  act  and  the  lack  of  any  such  provisions  as 
punishment  for  unfair  methods  of  competition  clearly  point  to  civil 
rather  than  criminal  procedure  as  the  remedy  to  be  invoked  in  cases 
of  violation  of  the  principal  prohibitions  of  the  new  legislation. 
This,  coupled  with  the  fact  that  the  new  laws  provide  for  a  Trade 
Commission  with  jurisdiction  over  the  important  prohibitions,  points 
to  a  policy  of  administrative  regulation  of  the  trusts. 

9.  The  powers  given  to  the  Trade  Commission  of  classifying 
corporations  and  prescribing  the  form  of  reports  are  pregnant  with 
possibilities.  Through  these  powers  it  would  appear  possible  for  the 
Trade  Commission  to  determine  with  some  correctness  the  relative 
economic  efficiency  of  competition  on  the  one  hand  and  combina- 
tion and  monopoly  on  the  other.  Even  if  no  such  broad  deter- 
mination can  be  arrived  at  for  industry  in  general,  it  ought  at  least 
to  be  able  to  learn  in  what  types  and  kinds  of  business  the  one  or 
the  other  principle  is  the  more  efficient. 

ID.  There  are  provisions  in  the  new  legislation  in  the  direction 
of  enabling  individuals  to  protect  themselves  against  loss  or  damage 
by  reason  of  violations  or  threatened  violations  of  the  anti-trust 
acts.  This  embraces  among  other  things  a  re-enactment,  now  ap- 
plied to  violations  of  any  of  the  anti-trust  acts,  of  the  threefold  dam- 
age clause  of  the  Sherman  act. 

221,     Ultimate  Results  of  Regulating  Combinations'" 

BY  E.  DANA  DURAND 

Few  of  those  who  have  advocated  the  policy  of  permitting  com- 
binations to  exist  subject  to  regulation  seem  to  have  given  thought 

"Adapted  from  The  Trust  Problem,  46-59.  Copyright  by  Harvard  Uni- 
versity (1914). 


444  CURRENT  ECONOMIC  PROBLEMS 

to  the  magnitude  of  the  task,  its  difficulties,  or  its  ultimate  outcome. 
They  have  had  in  mind  the  comparatively  few  closely  knit  trusts  of 
the  present  time;  the  so-called  "good  trusts"  with  their  alleged 
superior  efficiency  and  their  more  or  less  reasonable  policy  toward 
the  public. 

In  the  first  place  it  would  be  difficult  to  limit  the  number  of 
trusts  under  such  a  policy.  It  is,  of  course,  conceivable  that  the 
government  should  undertake  to  suppress  combinations  in  general 
while  permitting  a  few  trusts  to  exist.  A  limited  number  might  be 
tolerated  because  of  the  special  economic  characteristics  of  the  in- 
dustries concerned  which  tended  to  make  combination  particularly 
economical.  If,  however,  the  people  once  concede  the  right  of  a 
monopolistic  combination  to  exist,  independently  of  extraordinary 
conditions,  a  sense  of  justice  should  apparently  compel  them  to  per- 
mit combinations  ad  libitum.  Under  no  theory  of  justice  could  all 
the  trusts  heretofore  organized  be  permitted  to  continue  without 
granting  permission  to  organize  trusts  in  every  other  field. 

In  the  second  place,  it  would  seem  that  if  combinations  having 
power  to  restrain  trade  are  to  be  permitted  at  all,  they  must  be  per- 
mitted to  become  as  comprehensive  as  they  desire.  Why  should  a 
combination  not  be  allowed  to  take  over  loo  per  cent  of  the  busi- 
ness in  its  field  quite  as  readily  as  80  or  70  per  cent?  Few  desire 
to  prohibit  combinations  controlling  only  a  small  proportion  of  a 
given  industry ;  but  if  we  permit  that  limit  to  be  overstepped  at  all, 
there  is  no  limit.  One  can  only  speculate  upon  how  numerous  and 
how  comprehensive  the  trusts  and  pools  would  become  if  the  policy 
were  adopted  of  permitting  them  freely  but  subjecting  them  to  regu- 
lation. In  all  probability  the  number  would  become  very  great.  Be- 
yond question  every  combination,  unless  prevented  by  the  govern- 
ment, would  take  in  just  as  large  a  proportion  of  the  trade  as  could 
be  persuaded  to  enter  it.  In  many  cases  this  would  mean  the  entire 
trade. 

If  corporations  were  freely  permitted  and  no  limit  placed  upon 
their  magnitude,  neither  actual  nor  potential  competition  would  be 
an  adequate  check  upon  prices  and  charges  for  service.  Govern- 
ment regulation  would  unquestionably  be  necessary. 

Some  have  suggested  that  regulation  would  be  comparatively 
simple.  Only  bad  trusts  would  be  interfered  with,  and  the  fear  pf 
government  intervention  would  make  most  of  the  trusts  good.  The 
government,  some  seem  to  think,  could  let  the  trust  go  its  own  way 
until  it  was  proved  to  have  become  extortionate  or  to  have  used  un- 
fair methods,  and  could  then  step  in  and  punish  its  officers,  or  sus- 


CAPITALISTIC  MONOPOLY  445 

pend  its  right  to  do  business.  But  how  is  the  trust  manager  to  know 
in  advance  what  prices  and  what  practices  will  be  adjudged  so  un- 
reasonable as  to  call  for  criminal  prosecution?  What  advantage 
would  there  be  in  breaking  up  a  trust,  if  another  trust  could  be 
formed  in  its  place  the  next  day?  It  would  be  intolerable  to  the 
users  of  its  products  and  services  to  stop  its  business  even  tem- 
porarily. A  good  trust  may  become  a  bad  trust  overnight.  Shall  it 
be  a  lawful  organization  today  and  an  outlawed  wreck  tomorrow? 
Regulation  implies  continuity  of  the  combinations.  Even  if  the 
government  adopted  the  policy  of  punishing  trust  managers  as  a 
penalty  for  extortionate  prices  and  unfair  practices,  this  would  re- 
quire as  thorough  an  investigation  and  as  difficult  a  judgment  as  to 
determine  the  proper  prices  and  practices  for  the  future. 

In  its  very  essence,  however,  regulation  implies,  not  punishment 
of  past  action,  but  prescription  of  future  action.  This  means  that 
the  government,  if  it  undertakes  regulation  of  trusts,  will  ultimately 
have  to  fix  their  prices  or  limit  their  profits,  or  both.  There  is  no 
way  to  insure  reasonable  prices  under  monopoly  control,  but  to  re- 
strict them.  If  the  government  enters  upon  this  policy  ought  it  not 
to  go  a  step  further  and  guarantee  to  the  combination  a  permanent 
monopoly,  protecting  them  against  competition?  The  public  is 
coming  to  accept  the  view  that  justice  to  investors  in  public  service 
industries  demands  protection  against  competition.  If  the  investor 
in  trust  securities  has  had  his  profits  held  down  by  government  regu- 
lation, it  is  hardly  fair  to  permit  those  profits  to  be  still  further  low- 
ered, perhaps  wholly  destroyed,  by  the  advent  of  a  competitor. 

Whatever  might  be  the  outcome  of  government  regulation,  there 
can  be  no  doubt  of  the  immense  difficulty  of  just  and  efficient  regu- 
lation of  the  prices  or  the  profits  of  industrial  combinations.  The 
federal  government  and  the  states  would  have  to  maintain  elaborate 
and  powerful  machinery  to  control  the  combinations.  Consider  the 
nature  of  the  task  which  would  confront  an  administrative  body.  In 
the  first  place,  it  would  have  to  possess  at  all  times  detailed  informa- 
tion regarding  all  the  concerns  under  its  jurisdiction.  The  prices  of 
many  commodities  are  necessarily  variable.  The  cost  of  material 
may  change  greatly  and  rapidly.  The  conditions  of  demand  are 
changeable.  Grave  injury  might  be  done  to  the  public  during  the 
time  required  for  securing  information  on  which  to  base  action  if 
such  information  were  not  already  in  the  possession  of  the  regu- 
lating authority. 

In  the  second  place,  the  amount  of  detail  involved  would  be 
enormous.     A   proper    fixing    of    prices    would    require    complete 


446  CURRENT  ECONOMIC  PROBLEMS 

knowledge  of  the  costs  of  production  and  of  the  amount  of  invest- 
ment. To  make  information  accurate,  the  government  would  have 
to  prescribe  the  methods  of  accounting.  It  would  be  impossible  to 
prescribe  uniform  methods  as  is  done  for  the  railroads.  The  be- 
wildering variety  of  conditions  in  the  different  industries  would  have 
to  be  provided  for.  Detailed  reports,  based  on  these  prescribed 
methods,  would  have  to  be  made  to  the  government,  and  these  would 
have  to  be  scrutinized  and  studied  with  the  utmost  care.  The  gov- 
ernment would  have  to  employ  a  vast  corps  of  expert  accountants, 
statisticians,  and  other  specialists.  The  difficulties  of  cost  account- 
ing are  so  great  that  many  of  the  large  business  concerns  have  found 
it  impossible  to  ascertain  the  costs  of  their  products  on  scientific 
principles.  The  business  concern  can  get  along  without  accurate 
knowledge  of  its  own  costs.  The  government,  however,  in  fixing 
prices,  must  know  all  about  cost,  both  operating  costs  and  capital 
charges.  They  are  the  very  things  which  primarily  determine  the 
reasonableness  of  prices. 

In  the  third  place,  the  determination  of  costs  and  investments 
for  the  purpose  of  fixing  prices  would  involve  immensely  difficult 
problems  of  judgment.  The  judgment  of  the  regulating  body  would 
be  constantly  challenged  and  the  result  would  probably  be  endless 
litigation.  The  proper  allowance  for  depreciation  and  obsolescence, 
the  proper  apportionment  of  overhead  charges  among  different 
products  and  services,  the  proper  methods  of  valuing  the  different 
elements  in  investment — these  would  have  to  be  passed  upon  by  the 
regulating  authority.  Such  problems  are  difficult  enough  as  they 
confront  the  Interstate  Commerce  Commission.  They  would  be  far 
more  difficult  for  a  body  dealing  with  multifarious  combinations  "in 
widely  differing  industries. 

Even  if  the  regulating  authority  should  succeed  in  working  out  a 
satisfactory  determination  of  costs  of  production  and  value  of  in- 
vestment, it  would  still  be  beset  with  troubles  in  fixing  prices  or 
limiting  profits.  Demand  for  goods  is  variable  even  in  non-com- 
petitive industries.  Unchanging  prices  or  prices  bearing  an  un- 
changing relation  to  costs  would  not  be  practical  in  mining,  manu- 
facturing, and  mercantile  business.  A  combination  might  at  times 
be  justified  in  reducing  prices  below  a  normal  level  to  stimulate  de- 
mand and  keep  its  force  employed,  or  to  meet  foreign  competition. 
The  government  would  then  have  to  determine  how  much  prices 
could  subsequently  be  advanced  in  order  to  offset  these  reductions. 
In  other  words,  the  government  would  be  dealing  with  a  constantly 
changing  problem  of  demand.     Particularly  difficult  would  be  the 


CAPITALISTIC  MONOPOLY  447 

fixing  of  proper  prices  for  products  produced  at  joint  cost.  Take 
petroleum  for  example.  A  wide  variety  of  products  are  derived 
from  the  one  raw  material,  crude  oil.  Some  of  these  are  in  so 
little  demand  that  they  must  be  sold  for  less  than  the  price  of  the 
crude  oil  itself.  Others  are  in  great  demand  and  can  be  sold  for 
high  prices.  It  is  impossible  to  use  costs  as  a  basis  for  determining 
prices  of  the  specific  products.  For  a  regulating  body  to  determine 
the  proper  relationships  of  the  prices  of  these  joint  products  is  vir- 
tually impossible. 

One  could  continue  almost  indefinitely  setting  forth  the  com- 
plexities and  difficulties  of  government  regulation  of  the  prices  and 
profits  of  combinations.  A  vague  form  of  regulation  will  not  do. 
It  would  be  difficult  to  prove  that  the  public  would  be  any  better  off 
under  a  regime  of  half -regulated  monopoly  than  under  a 
regime  of  competition  enforced  as  well  as  possible  by  laws 
against  combinations  and  monopolies.  Combination  must  be  proved 
decidedly  more  efficient  than  competition  before  the  people  will  be 
justified  in  trusting  trusts  under  any  but  the  most  rigorous  govern- 
ment control. 

Government  regulation  of  prices  and  profits  always  involves  a 
large  element  of  waste,  of  duplication  of  energy  and  cost.  It  means 
that  two  sets  of  persons  are  concerning  themselves  with  the  same 
work.  The  managers  and  employees  of  the  corporation  must  study 
cost  accounting  and  conditions  of  demand  in  determining  price  pol- 
icy. The  officers  and  employees  of  the  government  must  follow  and 
do  it  all  over  again.  Moreover,  the  fact  that  the  two  sets  of  persons 
have  diflterent  motives  in  approaching  their  work  means  friction  and 
litigation,  and  these  spell  further  expense.  To  superimpose  a  vast 
governmental  machinery  upon  the  vast  machinery  of  private  busi- 
ness is  an  extravagance  which  should  be  avoided  if  it  is  possible  to 
do  so. 

The  policy  of  government  regulation  of  industry  may  readily  be- 
come a  stepping-stone  to  government  ownership  and  socialism.  The 
chances  are  strong  that  the  government  of  the  United  States  will 
take  over  the  telegraphs  and  telephones  in  the  near  future  and  the 
railroads  within  less  than  a  quarter  of  a  century.  If  regulation  by 
the  government  proves  ineffective  in  securing  reasonable  rates,  the 
general  public  will  demand  government  ownership.  If  regulation 
proves  so  effective  as  to  leave  only  moderate  returns  to  the  stock- 
holders of  the  corporations,  the  stockholders  are  likely  to  urge  gov- 
ernment purchase,  which  would  at  least  assure  them  a  more  cer- 
tain income.  In  either  case  the  excessive  cost  of  government  regu- 
lation will  be  urged  as  a  reason  for  government  ownership.    In  the 


448  CURRENT  ECONOMIC  PROBLEMS 

same  way,  if  the  government  undertakes  detailed  regulation  of  com- 
binations in  manufacturing,  mining,  and  trade,  there  is  bound  to  be 
a  strong  movement  for  government  ownership  in  these  fields  also. 

Government  ownership  of  this  or  that  industry  is  not  necessarily 
a  bad  thing.  Even  government  ownership  of  a  large  proportion  of 
the  industries  of  the  country,  even  complete  socialism,  need  not 
necessarily  affright  us.  It  is  sufficient  to  point  out  that  the  people 
ought  not  to  enter  on  the  path  of  permitting  and  regulating  com- 
binations without  considering  the  advantages  and  disadvantages  of 
this,  the  possible  ultimate  outcome,  as  well  as  those  of  the  immedi- 
ate policy  itself.  If  it  could  be  proved  that  combination  is  materially 
more  economical  than  competition,  we  should  doubtless  be  wise  to 
say  farewell  to  competition.  Presumably  in  this  case  we  ought  to 
test  thoroughly  the  practicability  of  government  regulation  of  private 
monopoly  before  proceeding  further.  The  people  would  naturally 
first  try  the  plan  of  government  ownership,  if  at  all,  in  limited  fields, 
and  compare  the  results  with  those  of  regulated  monopoly  before 
undertaking  general  government  ownership.  It  is  by  no  means 
improbable  that  the  ultimate  outcome  would  be  socialism.  The 
future  is  very  likely  to  see  either  a  regime  of  general  competition 
— with,  of  course,  some  special  exceptions — or  a  regime  of  universal 
communism.  Clearly,  then,  we  should  be  very  sure  of  our  ground 
before  we  take  the  first  step  toward  possible  communism.  We 
should  convince  ourselves  beyond  all  doubt  that  competition  is  im- 
possible; or  that,  if  possible,  it  is  less  efficient  than  monopoly — not 
merely  at  certain  times  and  in  certain  places,  but  generally  and 
permanently — before  we  tolerate  widespread  combination  in  the 
field  of  business. 


DC 

THE  PROBLEMS  OF  POPULATION 

It  is  generally  agreed  to  be  desirable  to  use  our  powers  of  social  control 
to  eliminate,  or  greatly  reduce,  the  grosser  social  evils,  such  as  misery,  poverty, 
vice,  and  crime.  Perhaps  the  great  majority  of  us  would  go  farther,  and  use 
such  powers  in  quite  a  positive  way  to  make  society  conform  more  closely 
to  our  ideals.  But  we  differ,  as  "reformers"  have  always  done,  as  to 
methods.  In  general  we  belong  to  two  schools,  the  one  stressing  control  of 
"environment,"  the  other  control  of  "population."  The  former  demands 
greater  equality  in  the  distribution  of  income,  a  bettering  of  living  and  work- 
ing conditions,  a  state  relief  of  the  stress  due  to  "economic  insecurity,"  and 
like  measures.  The  latter  variously  insists  upon  the  reduction  of  numbers 
through  "control  of  births,"  the  restriction  of  immigration,  and  a  "scientific 
breeding"  of  a  "superior  race"  from  the  "eugenically  fit."  Some  of  the  latter 
school  emphasize  quantitative,  others  qualitative,  control  of  numbers. 

The  quantitative  question  has  been  much  the  more  clearly  appreciated. 
From  the  blessing  "of  the  seed  of  Abraham"  to  England's  recent  imperative 
demand  for  "war  brides,"  militaristic  thought  has  always  associated  national 
greatness  with  a  large  population.  A  country  in  the  stage  of  increasing  re- 
turns places  a  high  value  upon  sheer  quantity  of  people,  invites  large  fam- 
ilies through  its  social  conventions,  and  encourages  its  cities  to  boast  of  their 
numbers.  It  is  only  the  presence  or  the  anticipation  of  diminishing  returns 
that  causes  a  nation  to  see  truth  in  the  Malthusian- spector  of  pressure  of 
population  upon -the  means  of  subsistence. 

Half  unconsciously,  half  deliberately,  we  of  the  United  States  have  tried 
to  realize  oiir  "national  destiny"  by  exercising  control  over  our  numbers. 
But  our  problem  has  not  until  recently  involved  restriction  of  population. 
The  movement  for  "smaller  families  and  better"  is  one  of  a  few  decades, 
and  it  has  affected  only  the  more  settled  stocks.  It  cannot  be  said  to  have 
exercised  as  yet  any  general  influence  in  restricting  numbers.  Our  policy  has 
been,  on  the  contrary,  one  of  increasing  our  population  with  mechanical 
rapidity,  by  supplementing  a  high,  but  falling,  birth-rate  with  an  extremely 
high  rate  of  increase  through  immigration.  By  maintaining  an  "open  door" 
we  have  allowed  the  population  of  the  Western  world  slowly  to  adapt  itself 
to  natural  resources  considerably  augmented  by  the  addition  of  America. 
In  the  process  of  restoring  an  equilibrium  throughout  America  and  Europe 
as  a  single  social  entity,  population  has  flowed  to  the  regions  where  it  has 
the  highest  value.  The  passing  of  the  "old"  and  the  coming  of  the  "new" 
immigration  shows  that  the  leveling  process  in  the  Western  world  is  well 
under  way,  and  that  Southeastern  Europe  is  being  brought  within  the  com- 
mon scheme  of  values.  If  immigration  be  left  unrestricted,  the  "problem" 
will  eventually  disappear;  but  it  will  disappear  because  movement  will  no 
longer  pay.  This  will  come  about  when  the  lower  level  of  material  culture 
becomes  dominant  for  the  entity. 

We  have  increased  our  population  by  immigration  because  we  have 
needed  numbers.  Our  vast  natural  resources  have  demanded  for  their 
development  vast  quantities  of  cheap  labor.  A  continuous  immigrant  stream 
has  supplied  an  increasing  demand.  The  result  has  been  the  rapid  develop- 
ment of  a  vast  pecuniary  system,  in  which  the  older  stocks  have  generally 
been  pushed  up  into  positions  of  greater  responsibility  and  higher  wages. 
Our  standards  of  living  have  been  further  advanced  by  the  myriads  of  cheap 

449 


450  CURRENT  ECONOMIC  PROBLEM'S 

goods  which  immigrant  labor  has  enabled  our  mills  and  mines  to  turn  out. 

But,  like  protection,  the  results  of  immigration  have  not  been  and  could 
not  have  been,  hmited  to  the  purely  industrial  results  which  were  anticipated. 
Immigration,  in  connection  with  such  complementary  "forces"  as  protection, 
the  rapid  accumulation  of  capital,  the  swift  adaptation  of  the  machine  tech- 
nique to  a  new  continent,  has  contributed  to  the  general  transformation  of 
American  society  which  has  come  about  in  the  last  fifty  years.  It  has  played 
its  part  in  the  overdevelopment  of  our  natural  resources,  the  rapid  growth 
of  our  mining  and  manufacturing,  the  extension  of  our  pecuniary  system, 
the  evolution  of  our  urban  culture,  and  the  institutions,  attitudes,  and  prob- 
lems which  have  been  incident  to  this.  Its  role  in  the  production  of  our 
"prosperity"  has  been  by  no  means  a  negligible  one.  Its  social  effects  are 
very  closely  bound  up  with  the  tariff.  By  accelerating  the  rate  of  our  develop- 
ment and  by  tying  up  larger  and  larger  proportions  of  our  resources  in 
industries  supplying  capricious  wants,  it  has  intensified  the  rhythm  of  the 
business  cycle.  By  blessing  the  country  with  an  endless  stream  of  "green" 
labor,  it  has  seriously  weakened  the  bargaining  position  of  native  laborers, 
has  retarded  the  development  of  group  solidarity,  and  has  slackened  the  rate 
of  improvement  of  factory  conditions.  It  has  caused  our  national  life  to 
remain  "in  a  state  of  perpetual  transition,"  and  inhibited  the  formulation  of 
the  standards  which  a  stable  society  must  possess.  Through  the  very  plasticity 
of  the  immigrant  it  has  preserved  too  much  of  the  older  institutional  system, 
despite  the  sweeping  transformation  of  our  social  life.  To  this  end  it  has 
strengthened  the  hold  of  the  older  individualism ;  it  has  increased  the  in- 
equalities in  wealth ;  it  has  rendered  the  strategic  position  of  property 
stronger ;  it  has  added  huge  increments  of  illiteracy  to  the  body  of  citizens ; 
it  has  delayed  our  achievement  of  social  unity. 

Not  content  with  complicating  all  our  social  problems  and  adding  a 
quota  of  new  ones,  it  has  presented  us  a  perplexing  and  baffling  immigration 
problem.  In  the  past  we  have  solved  this  in  the  formula,  "Whosoever  will, 
let  him  come."  Our  futile  attempts  at  restriction  have  involved  the  contra- 
diction of  making  use  of  a  qualitative  test,  that  of  literacy,  to  solve  a  problem 
which  we  have  conceived  of  only  in  quantitative  terms.  But,  if  we  are  to 
control  our  growth,  we  must  formulate  a  more  elaborate  policy.  In  that 
task  we  must  ask  ourselves  some  very  pertinent  questions.  What  place  is 
the  immigrant  to  have  in  the  future  American  society?  Is  he  ultimately  to 
become  one  of  us,  or  is  he  to  constitute  a  permanent  proletariat  in  a  class 
society?  How  many  immigrants  can  we  use?  What  are  we  to  use  them 
for?  What  policy  will  result  in  securing  the  right  number,  of  the  right  kinds, 
and  in  the  right  proportions?  Have  we  elaborated  machinery  for  making 
the  immigrants  the  kinds  of  people  we  want  them  to  be  ?  Can  such  machinery 
be  elaborated?  What  influences  is  the  newcomer  exerting,  or  destined  to 
exert,  upon  our  ideals,  our  standards,  our  institutions,  and  our  programs? 
And  what  in  the  less  immediate  future  is  going  to  be  the  good  of  it  all? 

As  we  as  a  nation  become  older,  our  problems  little  by  little  lose  their 
gigantic  and  crude  character.  Our  solutions  must  accordingly  become  more 
delicate  and  exact.  With  this  change  in  our  national  life  we  are  beginning 
to  give  more  attention  to  the  qualitative  side  of  the  population  problem.  As  yet 
we  have  aimed  only  at  "negative"  results.  We  have  tried  to  prevent  the 
marriage  and  breeding  of  the  "unfit,"  such  as  the  insane,  the  feeble-minded, 
and  those  possessed  of  chronic  and  hereditary  (?)  diseases.  We  have  made 
some  attempt  to  prevent  the  marriages  of  those  of  radically  different  stocks, 
such  as  whites  and  blacks.  But  we  have  as  yet  formulated  no  positive  pro- 
gram aimed  at  a  definite  result.  We  have,  with  trifling  exceptions,  allowed 
men  of  any  race  to  come  and  sojourn  with  us.  To  prevent  their  becoming 
contributors  to  a  future  American  race  we  have  depended  only  upon  such 
social  restraints  as  inhere  in  racial  antipathy  and  in  the  difference  in  social 
and  economic  positions  between  members  of  different  stocks.  A  permanent 
control  of  the  quality  of  population  involves  both  the  immigration  and  the 


POPULATION  AND  IMMIGRATION  451 

eugenics  problems.  We  must  allow  only  those  whom  we  desire  to  come  in 
or  to  be  born.  But  whom  do  we  desire?  This  problem  is  not  the  simple 
one  of  the  breeder  of  race  horses,  draught  animals,  or  fine  porkers.  There  is 
no  single  and  simple  quality  that  we  are  to  breed  for,  such  as  speed,  physical 
strength,  or  quantity  of  flesh.  The  answer  is  contingent  upon  the  answer  to 
the  larger  and  more  difficult  question  of  the  kind  of  society  we  want  to 
develop.  ^ 

A.     THE  QUESTION  OF  NUMBERS 
222.     Utopia  and  the  Serpent^ 

BY  THOMAS  HUXI.EY 

Suppose  a  shipload  of  English  colonists  to  form  a  settlement  in 
such  a  country  as  Tasmania  was  in  the  middle  of  the  last  century. 
On  landing  they  find  themselves  in  the  midst  of  a  state  of  nature, 
widely  differing  from  that  left  behind  them.  They  proceed  to  put 
an  end  to  this  state  of  things  over  the  area  they  wish  to  occupy. 
They  clear  away  the  native  vegetation,  and  introduce  English  vege- 
table and  animal  life,  and  English  methods  of  cultivation.  Con- 
sidered as  a  whole  the  colony  is  a  composite  unit  introduced  into  the 
old  state  of  nature;  and,  thenceforward,  a  competitor  in  the  strug- 
gle for  existence.  Under  the  conditions  supposed  there  is  no  doubt 
of  the  result,  if  the  work  of  the  colonists  be  carried  out  intelligently. 
On  the  other  hand,  if  they  are  slothful,  stupid,  or  careless,  there  is 
no  doubt  that  the  old  state  of  nature  will  have  the  best  of  it. 

Let  us  now  imagine  that  some  administrative  authority,  as  far 
superior  to  men  as  men  are  to  their  cattle,  is  set  over  the  colony. 
The  administrator  would,  so  far  as  possible,  put  a  stop  to  the  in- 
fluence of  external  competition  by  thoroughly  extirpating  the  native 
rivals,  whether  man,  beasts,  or  plants.  And  he  would  select  his 
human  agents  with  a  view  to  his  ideal  of  a  successful  colony.  Next, 
in  order  that  no  struggle  for  means  of  existence  between  human 
agents  should  weaken  the  efficiency  of  the  corporate  whole,  he  would 
make  arrangements  by  which  each  would  be  provided  with  those 
means.  In  other  words,  selection  by  means  of  a  struggle  for  ex- 
istence betv,'een  man  and  man  would  be  excluded.  At  the  same 
time,  the  obstacles  to  the  development  of  the  full  capacities  of  the 
colonists  would  be  removed  by  the  creation  of  artificial  conditions 
of  existence  of  a  more  favorable  character.  Protection  against  heat 
and  cold ;  drainage  and  irrigation,  as  preventitives  of  excessive  rain 
and  drought;  roads  and  canals,  to  overcome  obstacles  to  locomo- 
tion; mechanical  agencies  to  supplement  the  natural  strength  of 
men,  would  all  be  afforded.     With  every  step  in  this  progress  in 

^Adapted  from  "Prolegomena"  to  Evolution  and  Ethics,  v-vii  (1894). 


452  CURRENT  ECONOMIC  PROBLEMS 

civilization,  the  colonists  would  become  more  and  more  independent 
of  nature.  To  attain  his  ends  the  administrator  would  avail  him- 
self of  the  courage,  industry  and  co-operative  intelligence  of  the 
settlers;  and  it  is  plain  that  the  interests  of  the  community  would 
be  best  served  by  increasing  the  proportion  of  persons  who  possess 
such  qualities,  in  other  words,  by  selection  directed  toward  an  ideal. 
Thus  the  administrator  might  look  for  the  establishment  of  an 
earthly  paradise,  a  true  garden  of  Eden,  in  which  all  things  should 
work  together  toward  the  well-being  of  the  gardeners,  in  which 
men  themselves  should  have  been  selected  with  a  view  to  their 
efficiency  as  organs  for  the  performance  of  the  functions  of  a  per- 
fected society. 

But  this  Eden  would  have  its  serpent,  and  a  very  subtle  beast 
too.  Man  shares  with  the  rest  of  the  living  world  the  mighty 
instinct  of  reproduction  and  its  consequence,  the  tendency  to  multi- 
ply with  great  rapidity.  The  better  the  measures  of  the  administra- 
tor achieved  their  object,  the  more  completely  the  destructive  agen- 
cies of  the  state  of  nature  were  defeated,  the  less  would  that  multi- 
plication be  checked.  Thus  as  soon  as  the  colonists  began  to  mul- 
tiply, the  administrator  would  have  to  face  the  tendency  to  the 
reintroduction  of  natural  struggle  into  his  artificial  fabric,  in  con- 
sequence of  the  competition,  not  merely  for  the  commodities,  but 
for  the  means  of  existence.  When  the  colony  reached  the  limit  of 
possible  expansion,  the  surplus  population  must  be  disposed  of 
somehow;  or  the  fierce  struggle  for  existence  must  recommence 
and  destroy  the  artificially  created  system. 

223.     Early  Appraisals  of  Population 

a)     by  an  early  historian^ 

And  thy  seed  shall  be  as  the  dust  of  the  earth,  and  thou  shalt 
spread  abroad  to  the  west,  and  to  the  east,  and  to  the  north,  and  to 
the  south ;  and  in  thee  and  thy  seed  shall  all  the  nations  of  the  earth 
be  blessed. 

b)       by  an  EARI.Y  POET* 

Lo,  children  are  a  heritage  of  Jehovah ; 

And  the  fruit  of  the  womb  is  his  reward. 

As  arrows  in  the  hands  of  a  mighty  man 

So  are  the  children  of  youth. 

Happy  is  the  man  that  hath  his  quiver  full  of  them. 

'From  Gen.  28:14  (750  b.  c). 
•From  Ps.  127:3-5  (200  b.  c). 


POPULATION  AND  IMMIGRATION  453 

C)      BY  ARISTOTLE* 

There  is  an  inconsistency  in  equalizing  the  property  and  not  regu- 
lating the  number  of  the  citizens.  ■  One  would  have  thought  that  it 
was  even  more  necessary  to  limit  population  than  property;  and 
that  the  limit  should  be  fixed  by  calculating  the  chances  of  mor- 
tality in  the,  children,  and  of  sterility  in  married  persons.  The  neg- 
lect of  this  subject,  which  in  existing  states  is  so  common,  is  a  never- 
failing  cause  of  poverty  among  the  citizens,  and  poverty  is  the 
parent  of  revolution  and  crime. 

d)     by  sir  wilivIAM  temple' 

The  true  and  natural  ground  of  trade  and  riches  is  the  num- 
ber of  people  in  proportion  to  the  compass  of  the  ground  they 
occupy.  This  makes  all  things  necessary  to  life  dear,  and  forces 
men  to  industry  and  parsimony.  These  customs  which  grow  firsf 
from  necessity  become  with  time  to  be  habitual  to  the  country.  And 
wherever  they  are  so,  that  place  must  grow  great  in  traffic  and 
riches,  if  not  disturbed  by  some  accident  or  revolution,  by  which 
the  people  come  either  to  be  scattered  or  destroyed.  When  things 
are  once  in  motion  trade  begets  trade  as  fire  does  fire;  and  people 
go  much  where  people  have  already  gone. 

e)     by  sir  josiah  child* 

You  cry  up  the  Dutch  to  be  a  brave  people,  rich  and  full  of 
cities,  that  they  swarm  with  people  as  bee-hives  with  bees;  if  a 
plague  come  they  are  filled  up  presently  and  such  like;  yet  they 
do  all  this  by  inviting  all  the  world  to  come  and  live  among  therp. 
You  complain  of  Spain,  because  their  inquisition  is  so  high,  they'll 
let  nobody  come  and  live  among  them,  and  that's  the  main  cause 
of  their  weakness  and  poverty.  Will  not  a  multitude  of  people 
strengthen  us  as  well  as  the  want  of  it  weaken  them?    Sure  it  will. 

F)      by  DANIEL  DEFOE^ 

Whence  is  all  this  poverty  of  a  country?  'Tis  evident  'twas 
want  of  trade  and  nothing  else.     Trade  encourages  manufacture, 

*Adapted  from  The  Politics,  II,  6  (357  B.C.)  ;  tr.  by  B.  Jowett. 

"Adapted  from  "An  Essay  upon  the  Advancement  of  Trade  in  Ireland," 
in  Works,  HI,  2-3  (1673). 

'Adapted  from  "England's  Great  Happiness,"  in  McCuUoch's  Select  Col- 
lection of  Early  English  Tracts  on  Commerce,  263  (1677). 

"Adapted  from  "Extracts  from  a  Plan  of  English  Commerce,  being  a 
Compleat  Compendium  of  the  Trade  of  This  Nation,"  in  McCulloch's  Select 
Collection  of  Scarce  and  Valuable  Tracts  on  Commerce,  112-113   (1730). 


454  CURRENT  ECONOMIC  PROBLEMS 

prompts  invention,  increases  labor  and  pays  wages.  As  the  num- 
ber of  people  increase,  the  consumption  of  provisions  increases.  As 
the  consumption  of  provisions  increases,  more  lands  are  cultivated. 
In  a  word  as  the  land  is  employed  the  people  increase  of  course 
and  the  prosperity  of  a  nation  rises  and  falls  just  as  trade  is  sup- 
ported or  decayed.  'Tis  by  their  multitude,  I  say,  that  all  wheels 
of  trade  are  set  on  foot,  the  manufacture  and  produce  of  the  land 
and  the  sea  are  finished,  cured  and  fitted  for  the  markets  abroad; 
'tis  by  the  largeness  of  their  gettings  that  they  are  supported. 

G)      by  sir  JAMES  STEUART* 

The  generative  faculty  resembles  a  spring  with  a  loaded  weight, 
which  always  exerts  itself  in  proportion  to  the  diminution  of  resist- 
ence;  when  food  has  remained  some  time  without  augmentation  or 
diminution  the  spring  is  overpowered ;  the  force  of  it  becomes  less 
than  nothing,  inhabitants  will  diminish  at  least  in  proportion  to  the 
over  charge.  If  on  the  other  hand  food  be  increased  the  spring 
will  exert  itself  in  proportion  as  the  resistence  diminishes ;  people 
will  begin  to  be  better  fed ;  they  will  multiply,  and  in  proportion  as 
they  increase  in  numbers,  the  food  will  become  scarce  again. 

h)      by  ARTHUR  YOUNG® 

In  spite  of  the  assertions  of  all  political  writers  for  the  last 
twenty  years,  who  place  the  prosperity  of  a  nation  in  the  greatest 
possible  population,  an  excessive  population  without  a  great  amount 
of  work  and  without  abundant  productions  is  a  devouring  surplus 
for  a  state;  for  this  excessive  population  does  not  get  the  benefits 
of  subsistence,  which,  without  this  excess,  they  would  partake  of ; 
the  amount  of  work  is  not  sufficient  for  the  number  of  hands ;  and 
the  price  of  work  is  lowered  by  the  great  competition  of  the  labor- 
ers, from  which  follows  indigence  to  those  who  cannot  find  work. 

l)      BY  ADAM  FERGUSON" 

The  number  in  which  we  should  wish  mankind  to  exist  is  lim- 
ited only  by  the  extent  of  place  for  their  residence  and  of  provision 
for  their  subsistence  and  accommodation ;  and  it  is  commonly  ob- 
served that  the  numbers  of  mankind  in  every  situation  do  multiply 

'Adapted  from  Principles  of  Political  Economy,  Being  an  Essay  on  the 
Science  of  Domestic  Policy  in  Free  States,  20  (1767). 

"Adapted  from  The  Farmer's  Tour  through  the  East  of  England,  429 
(1770- 

"Adapted  from  Principles  of  Moral  and  Political  Science,  II,  409-^10 
(1792). 


POPULATION  AND  IMMIGRATION  455 

up  to  the  means  of  subsistence.  To  extend  these  limits  is  good ;  to 
narrow  them  is  evil ;  but  although  the  increase  in  numbers  may  thus 
be  considered  as  object  of  desire,  yet  it  does  not  follow  that  we 
ought  to  wish  the  species  thus  indefinitely  multiplied. 


B.     THE  MALTHUSIAN  THEORY 
224.    The  Social  Crisis  at  the  Time  of  Malthus^^ 

BY  FEANCESCO  S.  NITTI 

At  the  time  of  Adam  Smith's  death,  in  1790,  the  French  Revolu- 
tion had  just  burst  forth,  and  the  choice  spirits  of  the  whole  of 
Europe  followed  it  with  enthusiasm  and  trust.  Very  fortunately 
for  himself,  Smith  did  not  see  the  days  of  terror  and  the  ruin  of 
the  French  Revolution,  nor  did  he  behold  the  frightful  economic 
crisis  which  later  resulted  from  the  industrial  revolution  in  his  own 
country.  In  what  different  surroundings  and  under  what  different 
conditions  Malthus  conceived  and  published  his  work! 

The  French  Revolution  was  stifled  in  blood,  and  upon  the  politi- 
cal horizon  of  Europe  there  already  appeared  the  showers  which 
announced  the  Napoleonic  storms.  The  tyrant  had  been  killed, 
the  old  privileges  abolished,  but  the  illusion  had  also  proved  false 
in  a  great  and  far-reaching  way ;  for,  in  spite  of  reforms,  society 
had  remained  essentially  the  same. 

The  life  of  England  beheld  by  Malthus  in  his  youth  was  not 
less  saddening.  Various  successive  seasons  of  scarcity  had  impov- 
erished British  agriculture,  while,  influenced  by  the  rapid  develop- 
ment of  industries,  the  population  increased  and  the  phenomenon  of 
over-population  systematically  occurred.  Imports  and  custom  du- 
ties hindered  the  rapid  progress  of  the  means  of  subsistence  and 
of  exchange.  The  evils  of  war  and  famine  found  a  sad  counter- 
part in  the  occurrence  of  a  terrible  industrial  crisis,  than  which 
not  even  England  has  seen  a  sadder  or  a  vaster.  The  great  num- 
ber of  discoveries  had,  in  fact,  originated  the  formation  of  the  great 
industrial  system;  and,  crushed  by  this  last,  the  smaller  industries 
were  violently  injured  and  unable  to  resist.  Thus  the  old  indus-  "" 
tries  died  away  on  all  sides,  bringing  down  in  their  ruin  thousands 
of  workmen,  and  causing  a  strong  feeling  of  misfortune  to  be  felt 
by  the  whole  of  England.  This  evil  state  of  things  was  the  more 
deeply  felt  because  the  new  ideas,  spread  among  the  educated  class- 
es, augmented  the  subjective  causes  of  misery, 

"Adapted  from  Population  and  the  Social  System,  13-18  (1897). 


4S6  CURRENT  ECONOMIC  PROBLEMS 

The  poor  laws  became  a  source  of  evil ;  far  from  remedying 
pauperism,  they  increased  it.  Government  provisions  in  favour  of 
the  poorer  classes  were  inopportune. 

In  short,  the  whole  administration  of  public  relief  was  defec- 
tive. Multiplying  the  relief  given,  and  enlarging  the  practice  of 
allowances  was  of  no  avail :  it  ended  by  causing  a  progressive  de- 
cline in  wages.  Indeed,  at  one  time,  the  tithe  which  the  poor-rate 
levied  upon  the  tax-payers  in  general,  became  nothing  else  than  a 
species  of  subsidy  given  to  manufacturers.  In  reality,  the  taxpay- 
ers were  not  burdened  for  the  benefit  of  the  poor,  but  of  the  man- 
ufacturing classes,  and  the  tax  increased  so  much  that  the  rate  of 
the  wages  decreased  while  that  of  the  reliefs  increased.  Such  were 
the  causes  w^hich  prepared  and  produced  the  pessimistic  philosophy 
and  economics  of  which  Malthus  was  probably  then  the  greatest 
interpreter. 

In  the  great  disproportionate  distribution  of  wealth  originated  by 
the  large  growing  industry  and  the  rapid  technical  revolution,  So- 
cialism was  already  taking  its  rise. 

The  chief  spokesman  of  the  new  theories,  William  Godwin,  a 
very  successful  agitator  and  a  genial  if  not  always  a  profound 
writer,  but  always  most  acute  and  daring,  was  placed  more  than  any 
other  in  this  grave  contradiction. 

It  is  in  truth  very  difficult  to  gather  a  broad  and  complete  system 
from  Godwin's  disordered  work ;  what  is  chiefly  wanting  to  it  is 
stability  of  views.  While  in  his  celebrated  book,  An  Inquiry  Con- 
cerning Political  Justice,  studying  the  forms  of  property  he 
distinguishes  between  the  contrary  systems  of  private  property  and 
of  supply  and  demand,  and  declares  himself  favourable  to  this  last 
system,  and  hence  to  that  of  common  property;  nevertheless,  he 
would  have  the  great  transformation  to  occur  spontaneously,  with- 
out revolution  or  the  intervention  of  the  legislature.  The  evils 
which  oppress  society  belong  in  no  way  to  the  nature  of  things ;  on 
the  contrary,  it  is  from  human  institutions  that  misery  and  injus- 
tice arise.  Social  wealth  not  only  exists  in  sufficient  quantity,  but, 
if  properly  distributed,  could  aflFord  an  easy  existence  in  exchange 
of  moderate  labour.  Let  wealth  be  properly  distributed,  and  give 
mankind  sufficient  time  for  education  and  culture,  and  unaided  rea- 
son will  become  the  guide  of  human  action,  and  there  will  be  no 
further  need  of  coercion  and  violence.  In  short,  Godwin's  ideal 
was  really  an  anarchical  one,  but  mild  and  pacific. 

Among  the  greatest  admirers  of  Godwin  was  the  father  of  Rob- 
ert Malthus.  Not  so  the  son.  The  study  of  history  had  shown  him 
that  progress,  won  by  dint  of  sacrifices,  was  always  very  limited 


POPULATION  AND  IMMIGRATION  457 

and  always  gained  by  main  force  amid  resolute,  insurmountable, 
unceasing  obstacles.  Therefore,  he  did  not  trust  the  views  of  his 
father  or  the  philosophy  of  Godwin ;  and  it  was  while  studying  them 
that  he  conceived  the  plan  of  collecting  the  chief  ideas,  and  in  1798 
he  published  his  famous  essay. 


225.     The  Theory  of  Populations^ 

BY  THOMAS  ROBERT  MAI.THUS 

In  an  inquiry  concerning  the  improvement  of  society,  the  mode 
of  conducting  the  subject  which  naturally  presents  itself,  is,  i,  To 
investigate  the  causes  which  have  hitherto  impeded  the  progress  of 
mankind  towards  happiness;  and  2,  To  examine  the  probability  of 
the  total  or  partial  removal  of  these  causes  in  the  future.  The 
principal  object  of  this  essay  is  to  examine  the  effects  of  one  great 
cause  intimately  united  with  the  very  nature  of  man.  This  is  the 
constant  tendency  of  all  animated  life  to  increase  beyond  the  nour- 
ishment provided  for  it. 

Through  the  animal  and  vegetable  kingdoms  Nature  has  scat- 
tered the  seeds  of  life  abroad  with  the  most  profuse  and  liberal 
hand.  If  the  germs  of  existence  contained  in  the  earth  could  freely 
develop  themselves,  they  would  fill  millions  of  worlds  in  the  course 
of  a  few  thousand  years.  Necessity,  that  imperious,  all-pervading 
law  of  nature  restrains  them  and  man  alike  within  prescribed 
bounds. 

The  effects  of  nature's  check  on  man  are  complicated.  Impelled 
to  the  increase  of  his  species  by  an  equally  powerful  instinct,  rea- 
son interrupts  his  career,  and  asks  him  whether  he  may  not  bring 
beings  into  the  world,  for  whom  he  cannot  provide  the  means  of 
support.  If  he  hear  not  this  suggestion,  the  human  race  will  be 
constantly  endeavoring  to  increase  beyond  the  means  of  subsistence. 
But  as,  by  that  law  of  our  nature  which  makes  food  necessary  to 
the  life  of  man,  population  can  never  actually  increase  beyond  the 
lowest  nourishment  capable  of  supporting  it,  a  strong  check  on  pop- 
ulation, namely,  the  difficulty  of  acquiring  food,  must  be  constantly 
in  operation.  This  difficulty  must  fall  somewhere,  and  must  neces- 
sarily be  severely  felt  in  some  or  other  of  the  various  forms  of 
misery  by  a  large  portion  of  mankind.  This  conclusion  will  suffi- 
ciently appear  from  a  review  of  the  different  states  of  society  in 
which  man  has  existed.     But  the  subject  will  be  seen  in  a  clearer 

"Adapted  from  An  Essay  on  the  Principle  of  Population,  or  a  View  of 
the  Past  and  Present  Effects  on  Human  Happiness,  6th  ed.,  I,  1-24  (1826). 


458  CURRENT  ECONOMIC  PROBLEMS 

light,  if  we  endeavour  to  ascertain  what  would  be  the  natural  in- 
crease in  population,  if  left  to  exert  itself  with  perfect  freedom. 

Many  extravagant  statements  have  been  made  of  the  length  of 
the  period  within  which  the  population  of  a  country  can  double. 
To  be  perfectly  sure  we  are  far  within  the  truth,  we  will  take  a 
slow  rate,  and  say  that  population,  when  unchecked,  goes  on  doub- 
ling itself  every  twenty-five  years,  or  increases  in  a  geometrical 
ratio.  The  rate  according  to  which  the  productions  of  the  earth 
may  be  supposed  to  increase,  it  will  not  be  so  easy  to  determine. 
However,  we  may  be  perfectly  certain  that  the  ratio  of  their  in- 
crease in  a  limited  territory  must  be  of  a  totally  different  nature 
from  the  ratio  of  the  increase  in  population.  A  thousand  millions 
are  just  as  easy  doubled  every  twenty-five  years  by  the  power  of 
population  as  a  thousand.  But  the  food  will  by  no  means  be  ob- 
tained with  the  same  facility.  Man  is  confined  in.  room.  When 
acre  has  been  added  to  acre  till  all  the  fertile  land  is  occupied,  the 
yearly  increase  in  food  must  depend  upon  the  melioration  of  the 
land  already  in  possession.  This  is  a  fund,  which,  from  the  nature 
of  all  soils,  instead  of  increasing  must  be  gradually  diminishing. 
But  population,  could  it  be  supplied  with  food,  would  go  on  with 
unexhausted  vigor;  and  the  increase  in  one  period  would  furnish 
a  power  of  increase  in  the  next,  and  this  without  any  limit.  If  it 
be  allowed  that  by  the  best  possible  policy  the  average  produce 
could  be  doubled  in  the  first  twenty-five  years,  it  will  be  allowing 
a  greater  increase  than  could  with  reason  be  expected.  In  the 
next  twenty-five  years  it  is  impossible  to  suppose  that  the  produce 
could  be  quadrupled.  It  would  be  contrary  to  our  knowledge  of  the 
properties  of  land. 

Let  us  suppose  that  the  yearly  additions  which  might  be  made 
to  the  former  average  produce,  instead  of  decreasing  as  they  cer- 
tainly would  do,  were  to  remain  the  same ;  and  that  the  product  of 
the  land  might  be  increased  every  twenty-five  years,  by  a  quantity 
equal  to  what  it  at  present  produces.  The  most  enthusiastic  spec- 
ulator can  not  suppose  a  greater  increase  than  this.  Even  then 
the  land  could  not  be  made  to  increase  faster  than  in  an  arithmetical 
ratio.  Taking  the  whole  earth,  the  human  species  would  increase 
as  the  numbers  i,  2,  4,  8,  16,  32,  64,  128,  256,  and  subsistence  as 
I,  2,  3,  4,  5,  6,  7,  8,  9.  In  two  centuries  the  population  would  be  to 
the  means  of  subsistence  as  256  to  9 ;  in  three  centuries  as  4096  to 
13,  and  in  two  thousand  years  the  difference  would  be  almost  in- 
calculable. 

In  this  supposition  no  limits  whatever  are  placed  to  the  produce 
of  the  earth.     It  may  increase  forever  and  be  greater,  than  any 


POPULATION  AND  IMMIGRATION  459 

assignable  quantity ;  yet  still  the  power  of  population,  being  in 
every  period  so  much  greater,  the  increase  of  the  human  species 
can  only  be  kept  down  to  the  level  of  the  means  of  subsistence  by 
the  constant  operation  of  the  strong  law  of  necessity,  acting  as  a 
check  upon  the  greater  power. 

But  this  ultimate  check  to  population,  the  want  of  food,  is  never 
the  immediate  check  except  in  cases  of  famine.  The  latter  consists 
in  all  those  customs,  and  all  those  diseases,  which  seem  to  be  gen- 
erated by  a  scarcity  of  the  means  of  subsistence ;  and  all  those  causes 
which  tend  permanently  to  weal<en  the  human  frame.  The  checks 
may  be  classed  under  two  general  heads — ^the  preventative  and  the 
positive. 

The  preventative  check,  peculiar  to  man,  arises  from  his  reason- 
ing faculties,  which  enables  him  to  calculate  distant  consequences. 
He  sees  the  distress  which  frequently  presses  upon  those  who  have 
large  families;  he  cannot  contemplate  his  present  possessions  or 
earnings,  and  calculate  the  amount  of  each  share,  when  they  must 
be  divided,  perhaps,  among  seven  or  eight,  without  feeling  a  doubt 
whether  he  may  be  able  to  support  the  offspring  which  probably 
will  be  brought  into  the  world.  Other  considerations  occur.  Will 
he  lower  his  rank  in  life,  and  be  obliged  to  give  up  in  great  meas- 
ure his  former  habits?  Does  any  mode  of  employment  present  it- 
self by  which  he  may  reasonably  hope  to  maintain  a  family?  Will 
he  not  subject  himself  to  greater  difficulties  and  more  severe  labor 
than  in  his  present  state?  Will  he  be  able  tp  give  his  children  ade- 
quate educational  advantages?  Can  he  face  the  possibility  of  ex- 
posing his  children  to  poverty  or  charity,  by  his  inability  to  provide 
for  them?  These  considerations  prevent  a  large  number  of  people 
from  pursuing  the  dictates  of  nature. 

The  positive  checks  to  population  are  extremely  various,  and  in- 
clude every  cause,  whether  arising  from  vice  or  misery,  which  in 
any  degree  contributes  to  shorten  the  natural  duration  of  human 
life.  Under  this  head  may  be  enumerated  all  unwholesome  occu- 
pations, severe  labour,  exposure  to  the  seasons,  extreme  poverty, 
bad  nursing  of  children,  great  towns,  excesses  of  all  kinds,  the  whole 
train  of  common  diseases,  wars,  plagues,  and  famines. 

The  theory  of  population  is  resolvable  into  three  propositions: 

1.  Population  is  necessarily  limited  by  the  means  of  subsistence. 

2.  Population  invariably  increases  where  the  means  of  subsistence 
increase,  unless  prevented  by  some  very  powerful  and  obvious 
checks.  3.  These  checks  which  keep  population  on  a  level  with  the 
means  of  subsistence  are  all  resolvable  into  moral  restraint,  vice, 
and  misery. 


46o  CURRENT  ECONOMIC  PROBLEMS 

226.     Meilthusianism  a  Support  of  Capitalism^^ 

BY  PIERCY  RAVENSTONE 

We  have  new  doctrines  preached  to  us.  Men,  it  is  now  discov- 
ered grow  more  readily  than  plants.  Human  beings  overrun  the 
world  with  the  rapidity  of  weeds.  Hence  the  hopeless  misery.  The 
earth  groans  under  the  weight  of  numbers.  The  rich  it  is  now  dis- 
covered give  bread  to  the  poor.  Labour  owes  its  support  to  idle- 
ness. Those  who  produce  everything  would  starve  but  for  the  as- 
sistance of  those  who  produce  nothing.  The  numbers  of  the  poor 
are  to  be  chedced  by  all  possible  means:  every  impediment  is  to  be 
placed  in  the  way  of  their  marriages,  lest  they  should  multiply  too 
fast  for  the  capital  of  the  country.  The  rich,  on  the  contrary,  are 
to  be  encouraged,  everything  is  to  be  done  for  their  benefit.  For 
though  they  produce  nothing  themselves,  their  capital  is  the  cause 
of  everything  produced ;  it  gives  fertility  to  our  fields  and  fecundity 
to  our  flocks. 

These  doctrines  are  ilew.  It  was  long  the  established  creed  of 
every  statesman,  that  in  the  extent  of  its  population  consisted  the 
strength,  the  power,  and  the  opulence  of  every  nation ;  that  it  was 
therefore  the  duty  of  every  sovereign  to  increase,  by  all  prac- 
ticable means,  the  number  of  the  people  committed  to  his  charge. 
On  whatever  other  points  statesmen  and  legislators  might  differ, 
on  this  they  were  all  agreed.  From  Lycurgus  to  Montesquieu  the 
doctrine  underwent  no  change.  Marriage  was  everywhere  held  up 
as  honourable;  children  were  considered  as  entitling  their  fathers 
to  peculiar  privilege  and  the  mark  of  scorn  was  imprinted  on  the 
selfish  being  who  remained  single.  Poverty  gave  no  exception,  it 
rather  increased  the  obligation.  His  country  gratefully  received 
in  children  the  contribution  of  him  who  had  nothing  else  to  give. 
The  wealth  of  a  nation  consisted  in  the  number  and  strength  of 
its  peasantry.  Men  did  not  dream  that  riches  could  be  separated 
ffom  numbers.  By  these  newer  doctrines  pestilence  and  famine 
are  ministers  of  God,  executing  his  eternal  decrees,  and  rescuing 
us  from  the  necessity  of  overwhelming  wretchedness.  The  doctrine 
has  robbed  Divinity  of  all  the  charities  of  his  nature,  leaving  to 
him  little  else  than  the  functions  of  an  enemy  of  mankind. 

The  great  and  the  rich  could  not  be  much  offended  at  discover- 
ing that  whilst  their  rights  were  augmented,  they  were  entirely 
absolved   from  the  performance  of  those  actions  which   the  less 

^•Adapted  from  A  Few  Doubts  as  to  the  Correctness  of  Some  Opinions 
Generally  Entertained  on  the  Subjects  of  Population  and  Political  Economy. 
S-24  (1821). 


POPULATION  AND  IMMIGRATION  461 

enlightened  judgment  of  other  times  had  classed  amongst  the  most 
important  and  essential  of  their  duties.  To  be  merciful  to  our  own 
faults,  to  believe  our  idle  expenses  meritorious,  to  set  up  selfishness 
as  the  idol  of  our  idolatry,  and  to  drive  away  charity,  are  duties  not 
very  repugnant  to  our  nature.  They  demand  no  sacrifice  in  their 
performance.  The  temple  of  virtue  will  be  crowned  with  votaries, 
if  it  be  made  to  lead  to  the  shrine  of  self-interest. 

Those  severer  morals  which  taught  that  the  poor  were  equally 
partakers  of  the  divine  nature  with  the  rich ;  that  they  were  equally 
fashioned  in  the  image  and  likeness  of  God;  that  their  industry 
being  the  cause  of  all  that  was  produced,  and  the  rich  being  in  real- 
ity only  pensioners  on  their  bounty,  the  latter  were  only  trustees 
for  the  good  of  society;  that  their  wealth  was  given  not  for  their 
own  enjoyment,  but  for  its  better  distribution  through  the  diflFerent 
channels  of  society,  were  not  likely  long  to  maintain  their  hold  on 
the  minds  of  the  wealthy  against  those  sedative  doctrines  which 
flattered  the  passions,  converted  faults  into  good  qualities,  and  made 
even  conscience  pander  to  vices. 

It  is  an  old  and  dreary  system  which  represents  our  fellow- 
creatures  as  so  many  rivals  and  enemies,  which  makes  us  believe 
that  their  happiness  is  incompatible  with  our  own,  which  builds  our 
wealth  on  their  poverty,  and  teaches  that  their  numbers  cannot  con- 
sist with  our  comforts  and  enjoyments;  which  would  persuade  us 
to  lode  on  the  world  as  a  besieged  town,  where  the  death  of  our 
neighbors  is  hailed  with  secret  satisfaction  since  it  augments  the 
quantity  of  provisions  likely  to  fall  to  our  share.  To  consider  mis- 
ery and  vice  as  mere  arrangements  of  the  Divinity  to  prevent  the 
inconvenience  of  a  too  great  population  of  the  world,  is  to  adopt 
predestination  in  its  worst  form.  In  committing  crimes  we  should 
only  be  executing  the  will  of  God;  in  alleviating  the  distresses  of 
others,  in  feeding  the  hungry  and  clothing  the  naked,  we  should  be 
running  counter  to  the  decrees  of  Providence. 

But  before  we  can  adopt  these  conclusions,  it  behooves  us  to 
exapiine  on  what  foundation  the  system  is  built.  We  must  remem- 
ber that  it  is  the  common  interests  of  all  members  which  holds  so- 
ciety together.  Misery  is  not  of  God's  creation;  vice  is  not  the 
minister  of  His  will.  I  shall  show  that  the  increase  in  numbers  in 
the  human  species  is  wholly  uninfluenced  by  human  institutions.  It 
is  by  no  means  so  varied  in  its  operation  as  Mr.  Malthus  has  sup- 
posed ;  it  affords  no  ground  for  alarm ;  it  calls  for  no  restrictive 
measures,  since  the  increase  in  subsistence  is  entirely  dependent  on 
the  increase  in  numbers.  Every  man  brings  into  the  world  the 
means  of  producing  his  own  sustenance.    Wherever  the  numbers  of 


462  CURRENT  ECONOMIC  PROBLEMS 

the  people  increase  more  rapidly  than  the  means  of  subsistence,  the 
fault  is  not  with  Providence,  but  in  the  regulations  of  society.  Cap- 
ital is  no  addition  to  the  wealth  of  a  nation ;  it  conduces  nothing  to 
the  improvement  of  the  industry ;  it  is  merely  a  new  distribution  of 
the  property  of  society,  beneficial  to  some,  wholly  because  it  is  in- 
jurious to  others. 

227.     Malthus  versus  the  Malthusians^* 

BY  LEONARD  T.  HOBHOUSE) 

The  appearance  of  the  biological  theory  of  progress,  of  which 
we  have  been  hearing  much  of  late,  was  announced  by  the  terrible 
douche  of  cold  water  thrown  by  Malthus  on  the  speculative  optim- 
ism of  the  eighteenth  century.  The  generation  preceding  the  French 
Revolution  was  a  time  of  buoyant  and  sanguine  outlook.  There 
floated  before  men  the  idea  of  an  age  of  reason  when  men  should 
throw  off  the  incubus  of  the  past  and  resume  a  life  in  accordance 
with  nature  in  a  social  order  founded  on  a  rational  consideration 
of  natural  rights.  Nature  both  in  the  politics  and  the  economics 
of  the  time  assumes  a  half  personal  and  wholly  benevolent  character 
while  human  restrictions,  human  conventions,  play  the  part  of  the 
villain  in  the  piece.  At  this  point  Malthus  intervened  by  calling 
attention  to  a  "natural"  law  of  great  significance.  This  was  the 
law  that  human  beings  multiplied  in  a  geometrical  ratio;  that  it 
was  only  by  the  checks  of  famine,  pestilence,  and  war  that  they 
were  prevented  from  overspreading  the  earth,  and  that,  to  cut  the 
matter  short,  whatever  the  available  means  of  subsistence,  mankind 
would  always,  in  the  absence  of  prudential  checks,  multiply  up  to 
the  limit  at  which  those  means  became  inadequate.  True,  the  means 
of  subsistence  might  be  extended.  New  countries  might  be  opened 
up.  New  sources  of  food  supply  ;iiight  be  discovered.  Every  such 
extension,  the  Malthusian  argued,  would  only  redouble  the  rate  of 
multiplication.-  Checks  would  cease,  men  and  women  would  marry 
earlier;  very  soon  population  would  again  be  pressing  on  the  means 
of  subsistence.  The  advance  in  civilization  told  in  the  same  direc- 
tion. Population  was  increasing,  must  increase.  It  could  be  held 
in  check  only  by  the  one  great  barrier  of  the  subsistence  limit 
against  which  the  fringe  of  advancing  population  must  forever  beat 
in  misery.  There  could  be  no  solution  of  the  social  question ;  for 
in  the  nature  of  things  there  must  be  a  line  where  the  surf  of  the 
advancing  tide  breaks  upon  the  shore,  and  that  shore  was  death 

^*Adapted  from  Social  Evolution  and  Political  Theory,  13-16.    Copyright 
by  the  Columbia  University  Press  (191 1). 


POPULATION  AND  IMMIGRATION  463 

from  insufficiency  of  nourishment.  You  observe  that  in  summariz- 
ing the  argument  I  speak  partly  of  Malthus,  partly  of  the  Malthus- 
ians.  Malthus  himself,  particularly  in  his  second  edition,  laid  stress 
on  the  prudential  checks.  He  cannot  fairly  be  accused  of  foster- 
ing the  pessimistic  views  often  fastened  upon  him.  But  for  many 
a  long  year  after  he  wrote,  the  efficacy  of  the  prudential  checks  ap- 
peared to  be  very  slight.  It  was  his  first  edition  that  was  generally 
absorbed  and  that  profoundly  influenced  social  thought  for  nearly 
a  century.  It  was  not  till  the  seventies  that  there  came  into  opera- 
tion that  general  fall  in  the  birth-rate,  which  has  justified  Malthus 
against  the  Malthusians,  has  put  the  calculations  of  the  future 
growth  of  population  on  a  radically  different  basis,  and  has  brought 
about  among  other  things  a  complete  reconstruction  of  the  biologi- 
cal argument  against  progress.  I  venture  to  think  we  may  draw  a 
lesson  from  the  fate  of  Malthusianism.  Mathematical  arguments 
drawn  from  the  assumption  that  human  beings  proceed  with  the 
statistical  regularity  of  a  flock  of  sheep  are  exceedingly  difficult 
to  refute  in  detail,  and  yet  they  rest  on  an  insecure  foundation. 
Man  is  not  merely  an  animal.  He  is  a  rational  being.  The  Mal- 
thusian  theory  was  one  cause  of  the  defeat  of  its  own  prophecies 
It  was  the  belief  that  population  was  growing  too  fast  that  operated 
indirectly  to  check  it.  Those  who  fear  that  population  is  now 
growing  too  slowly,  may  take  some  comfort  from  the  reflection. 
We  are  not  hastily  to  assume  inevitable  tendencies  in  human  socie- 
ty, because  the  moment  society  is  aware  of  its  tendencies  a  new 
fact  is  introduced.  Man,  unlike  other  animals,  is  moved  by  the 
knowledge  of  ends,  and  can  and  does  correct  the  tendencies  whose 
results  he  sees  to  be  disastrous.  The  alarmist  talk  of  race  suicide 
may  serve  its  purpose  if  only  by  admonishing  us  of  the  fate  of  a 
theory  based  on  what  appears  to  be  a  most  convincing  biological 
calculation. 

C.    THE  COMING  OF  THE  IMMIGRANT 
228.     The  Falling  Birth-Rate'» 

BY  EDWARD  AIvSWORTH  ROSS 

A  century  ago  Malthus  startled  the  world  by  demonstrating  that 
our  race  naturally  multiplies  faster  than  it  can  increase  its  food 
supply,  with  the  result  that  population  tends  ever  to  press  painfully 
upon  the  means  of  subsistence.     So  long  as  mankind  reproduces 

^'Adapted  from  Changing  America,  32-49.  Copyright  by  The  Century 
Company  (1912). 


464  CURRENT  ECONOMIC  PROBLEMS 

freely,  numbers  can  be  adjusted  to  resources  only  by  the  grinding 
of  destructive  agencies,  such  as  war,  famine,  poverty  and  disease. 
To  be  sure,  this  ghastly  train  of  ills  may  be  escaped  if  only  people 
will  prudently  postpone  marriage.  Since,  however,  late  marriage 
calls  for  the  exercise  of  more  foresight  and  self-control  than  can 
be  looked  for  in  the  masses,  Malthus  painted  the  future  of  humanity 
with  a  somberness  that  gave  political  economy  its  early  nickname 
of  "the  dismal  science." 

Malthus  is  not  in  the  least  "refuted"  by  the  fact  that,  during  his 
century,  the  inhabitants  of  Europe  leaped  in  number  from  one  hun- 
dred and  eighty-seven  millions  to  four  hundred  millions,  with  no 
increase  but  rather  diminution  of  misery.  It  is  true,  unprecedented 
successes  in  augmenting  the  food  supply  have  staved  off  the  over- 
population danger.  Within  a  life  time,  not  only  have  the  arts  of 
food  raising  made  giant  strides,  but,  at  the  world's  rim,  great  virgin 
tracts  have  been  brought  under  the  plow,  while  steam  hurries  to 
the  larders  of  the  Old  World  their  surplus  produce.  But  such  a 
bounty  of  the  gods  is  not  rashly  to  be  capitalized.  While  there  is 
no  limit  to  be  set  to  the  progress  of  scientific  agriculture,  no  one 
can  show  where  our  century  is  to  find  its  Mississippi  Valley,  Argen- 
tina, Canada,  or  New  ZeaJand,  to  fill  with  herds  or  farms..  The 
vaunted  plenty  of  our  time  adjourns  but  does  not  dispel  the  haunt- 
ing vision  of  a  starving  race  on  a  crowded  planet. 

Nevertheless,  the  clouds  that  hung  low  about  the  future  are 
breaking.  The  terrible  Malthus  failed  to  anticipate  certain  influ- 
ences which  in  some  places  have  already  so  far  checked  multiplica- 
tion as  to  ameliorate  the  lot  of  even  the  lower  and  broader  social 
layers.  The  sagging  of  the  national  birth-rate  made  its  first  ap- 
pearance about  fifty  years  ago  in  France,  thereby  giving  the  other 
peoples  a  chance  to  thank  God  they  were  not  as  these  decadent 
French.  But  the  thing  has  become  so  general  that  today  no  people 
dares  to  point  the  finger  of  scorn.  In  1878,  the  fall  of  the  birth- 
rate began  in  England.  During  the  eighties,  it  invaded  Belgium, 
Holland,  and  Switzerland.  In  1889  it  seized  with  great  virulence 
upon  Australia.  Just  before  the  close  of  the  century  Finland,  Italy, 
and  Hungary  fell  into  line.  In  Germany  and  Austria  it  is  only 
within  four  or  five  years  that  the  economists  have  begun  to  discuss 
"our  diminishing  fecundity."  In  all  Christendom,  only  Russia,  the 
Balkan  states  and  French  Canada  show  the  old-fashioned  birth-rates 
of  forty,  fifty,  or  even  fifty-five,  per  thousand.  The  tendency  in  the 
United  States  is  best  revealed  in  the  diminishing  number  of  children 
under  five  years  to  each  thousand  women  of  child-bearing  age.  The 
decline  from  i860  to  1890  is  24  per  cent 


POPULATION  AND  IMMIGRATION  465 

Owing  to  the  fact  that  the  death  rate  has  been  falling  even 
faster  than  the  birth  rate,  there  is,  so  far,  no  slackening  in  the 
growth  of  numbers.  Indeed,  part  of  the  fall  in  the  birth  rate  merely 
reflects  the  increasing  proportion  of  aged. 

The  forces  reducing  the  death-rate  are  by  no  means  the  same 
as  those  cutting  down  the  birth-rate,  nor  have  they  the  same  sphere 
of  operation.  Deaths  are  fewer  because  of  advances  in  medicine, 
better  medical  education,  public  hospitals,  pure  water  supply,  milk 
inspection,  housing  reform  and  sanitation.  Births  are  rarer  owing 
to  enlightenment,  the  ascent  of  women,  and  individualistic  democ- 
racy. The  former  may  be  introduced  quickly,  from  above.  The 
latter  await  the  slow  action  of  the  school,  the  press,  the  ballot,  the 
loosening  of  custom. 

An  abrupt  fall  in  the  birth-rate  of  from  10  to  20  per  cent  among 
the  four  hundred  million  bearers  of  the  Occidental  torch  is  a  phe- 
nomenon so  vast  and  so  pregnant  as  to  excite  the  liveliest  specu- 
lation. Some  lay  it  to  physiological  sterility  produced  by  alcohol, 
city  life  and  over-civilization.  There  are,  indeed,  in  some  quarters, 
notably  in  New  England,  evidences  of  a  decline  in  female  fertility ; 
but,  on  the  whole,  the  lower  birth-rate  reflects  the  smaller  size  of 
families  rather  than  the  greater  frequency  of  childless  couples. 

Others  insist  that  vice,  club-life,  the  comfortable  celibacy  of 
cities,  and  the  access  of  women  to  the  occupations  are  turning  peo- 
ple away  from  wedlock.  It  is  true  that  the  proportion  of  single 
women  is  increasing  with  us.  Still,  few  peoples  are  so  much  mar- 
ried as  Americans,  and,  for  all  that,  their  birth-rate  has  fallen  fast 
and  fallen  far.  Michigan,  which  is  about  as  addicted  to  the  mar- 
ried state  as  any  white  community  in  the  world,  has  only  two-thirds 
the  fecundity  of  England  and  half  that  of  Hungary. 

Perhaps  the  master  force  of  our  time  is  democracy.  The  bar- 
riers of  caste  are  down  so  that  more  and  more  a  man's  social  stand- 
ing depends  upon  himself.  The  lists  of  life  are  open  to  all,  and  the 
passion  to  "succeed"  grows  with  the  value  of  the  prizes  to  be  won. 
Never  before  did  so  many  common  people  strain  to  reach  a  higher 
rung  in  the  social  ladder.  But  prudence  bids  these  eager  climbers 
avoid  whatever  will  impede  one's  ascent  or  imperil  one's  footing. 
Children  are  incumbrances,  so  the  ambitious  dread  the  handicap  of 
an  early  marriage  and  a  large  family.  Even  the  unselfish,  whose 
aim  is  to  assure  their  children  a  social  position  equal  to  or  superior 
to  their  own,  will  see  to  it  that  there  are  not  more  children  than 
they  can  properly  equip. 

The  effect  of  democracy  is  reinforced  by  the  break-up  of  custom. 
As  fixed  class  distinctions  fade  out,  people  cease  to  be  guided  by  the 


466  CURRENT  ECONOMIC  PROBLEMS 

traditional  standard  of  comfort.  It  is  no  longer  enough  to  live  as 
father  and  mother  lived.  Wants  and  tastes,  once  confined  to  the 
social  elect,  spread  resistlessly  downward  and  infect  the  masses. 
Here  the  decencies,  there  the  comforts,  yonder  the  vanities  of  life 
compete  with  the  possible  child  and  bar  it  from  existence. 

The  great  movement  that  has  burst  the  fetters  on  woman's  mind, 
and  opened  to  her  so  many  careers,  exalts  her  in  the  marriage  part- 
nership and  causes  the  heavy  price  of  motherhood  to  be  more  con- 
sidered by  her  husband  as  well  as  by  herself. 

However  we  account  for  the  fall  in  the  birth-rate,  there  is  no 
question  as  to  its  consequences.  The  decline  registers  itself  in  a 
rising  plane  of  comfort,  a  growth  of  small  savings,  and  a  wider 
diffusion  of  ownership.  Owing  to  the  better  care  enjoyed  by  the 
aged  when  they  do  not  have  to  compete  for  attention  with  an  over- 
large  brood  of  wailing  infants,  there  is  a  striking  increase  in  lon- 
gevity. A  greater  proportion  of  lives  are  rounded  out  to  the  Psalm- 
ist's term.  There  is  also  a  wonderful  saving  of  life  among  infants, 
for  often  prolificacy  does  nothing  but  fill  the  churchyards  with  wee 
mounds.  When  we  consider  that  in  1790  there  were  in  this  coun- 
try just  twice  as  many  children  under  16  to  adults  over  20  as  there 
are  today  we  understand  why  the  law  limits  child  labor  and  insists 
on  keeping  children  in  school. 

But  the  supreme  service  of  forethoughted  parenthood  is  that  it 
bids  fair  to  deliver  us  from  the  overpopulation  horror,  which  was 
becoming  more  imminent  with  every  stride  in  medicine  or  public 
hygiene.  Most  of  the  Western  peoples  have  now  an  excess  of  births 
over  deaths  of  one  per  cent  a  year.  If  even  a  third  of  this  increase 
should  find  a  footing  over  sea,  then  home  expansion  would  still  be 
such  that,  at  a  future  date  no  more  remote  from  us  than  the  found- 
ing of  Jamestown,  Europe  would  groan  under  a  population  of  three 
billions,  while  the  United  States  of  that  day,  with  twice  as  many 
people  as  Europe  now  has,  would  be  to  China  what  China  is  to  the 
present  United  States.  Besides  its  attendant  miser}'^  and  degrada- 
tion, population  pressure  sharpens  every  form  of  struggle  among 
men, — competition,  class  strife,  and  war — and  the  dream  of  a  moral 
redemption  of  our  race  would  vanish  into  thin  air  if  the  enlightened 
peoples  had  failed  to  meet  the  crisis  created  by  the  reduction  of 
mortality. 

Once  it  seemed  as  if  man's  propensity  to  multiply  foredoomed 
him  to  live  ever  in  the  presence  of  vast  immediate  woe.  However 
smiling  the  gardens  of  Daphne  they  had  always  to  slope  down  into 
a  huge  malodorous  quagmire  of  wretchedness.  The  wheel  of  Ixion, 
the  cup  of  Tantalus,  symbolized  humanity  striving  ever  by  labor 


POPULATION  AND  IMMIGRATION  467 

and  ingenuity  to  relieve  itself  of  a  painful  burden,  only  to  have 
that  burden  inexorably  rolled  back  upon  it  by  its  own  fatal  fecun- 
dity. 

Now  that  cheap  travel  stirs  the  social  deeps  and  far-beckoning 
opportunity  fills  the  steerages,  immigration  becomes  ever  more 
serious  to  the  people  that  hopes  to  rid  itself  at  least  of  slums, 
"masses"  and  "submerged."  What  is  the  good  of  practising  pru- 
dence in  the  family  if  hungry  strangers  may  crowd  in  and  occupy 
at  the  banquet  table  of  life  the  places  reserved  for  its  children? 
Shall  it,  in  order  to  relieve  the  teeming  lands  of  their  unemployed, 
abide  in  the  pit  of  wolfish  competition  and  renounce  the  fair  pros- 
pect of  a  growth  in  suavity,  comfort,  and  refinement?  If  not,  then 
the  low-pressure  society  must  not  only  slam  its  doors  upon  the  in- 
draught, but  must  double-lock  them  with  forts  and  iron-clads,  lest 
they  be  burst  open  by  assault  from  some  quarter  where  "cannon 
food"  is  cheap. 

The  rush  of  developments  makes  it  certain  that  the  vision  of  a 
globe  "lapt  in  universal  law"  is  premature.  If  the  seers  of  the  mid- 
century  who  looked  for  the  speedy  triumph  of  free  trade  had  read 
their  Malthus  aright,  they  might  have  anticipated  the  tariflf  barriers 
that  have  risen  on  all  hands  within  the  last  thirty  years.  So,  today, 
one  needs  no  prophet's  mantle  to  foresee  that  presently  the  world 
will  be  cut  up  with  immigration  barriers  which  will  never  be  leveled 
until  the  intelligent  accommodation  of  numbers  to  resources  has 
greatly  equalized  population  pressure  all  over  the  globe.  The  French 
resent  the  million  and  a  third  aliens  that  have  been  squeezed  into 
hollow  and  prosperous  France  by  pressure  in  the  neighbor  lands. 
The  English  restrict  immigration  from  the  Continent.  The  Germans 
feel  the  thrust  from  the  overstocked  Slavic  areas.  The  United 
States,  Canada,  Australia  and  South  Africa  are  barring  out  the 
Asiatic.  Dams  against  the  color  races,  with  spillways  of  course  for 
students,  merchants,  and  travelers,  will  presently  enclose  the  white 
man's  world.  Within  this  area  minor  dams  will  protect  the  high 
wages  of  the  less  prolific  peoples  against  the  surplus  labor  of  the 
more  prolific. 

Assuredly,  every  small-family  nation  will  try  to  raise  such  a 
dam  and  every  big-family  nation  will  try  to  break  it  down.  The 
outlook  for  peace  and  disarmament  is,  therefore,  far  from  bright. 
One  needs  but  compare  the  population-pressures  in  France,  Ger- 
many, Russia  and  Japan  to  realize  that,  even  today,  the  real  enemy 
of  the  dove  of  peace  is  not  the  eagle  of  pride  or  the  vulture  of  greed 
but  the  stork! 


468  CURRENT  ECONOMIC  PROBLEMS 

229.     The  Immigrant  Invasion" 

BY  FRANK  JUUAN  WARN^ 

At  the  time  of  the  appearance  of  the  comet  in  1910  there  was  in 
progress  the  most  remarkable  and  in  many  ways  the  most  wonder- 
ful invasion  of  one  country  by  peoples  of  foreign  countries  that  the 
world  had  ever  seen.  In  the  very  month  of  May,  when  the  comet's 
appearance  in  the  heavens  was  being  heralded  in  the  newspapers, 
as  many  as  one  hundred  and  fifty  thousand  representatives  of  differ- 
ent races  and  countries  of  the  world  were  entering  the  immigrant 
ports  of  the  United  States.  They  were  equal  to  one  hundred  and 
fifty  full  regiments  of  one  thousand  each ;  they  were  double  the 
entire  fighting  strength  of  the  United  States  Army.  More  than  one 
million  people  from  all  the  countries  on  the  globe  were  that  year 
passing  in  a  seemingly  never-ending  stream  into  the  United  States. 

They  came  from  the  British  and  the  Spanish  Americas,  from 
Europe  and  from  Africa,  from  Asia  and  from  India,  from  the  is- 
lands of  the  Pacific  and  the  islands  of  the  Atlantic.  From  the 
United  Kingdom  and  the  Russian  Empire,  from  the  Scandinavian 
countries  and  the  Netherlands,  from  the  German  Empire  and  the 
Dual  Kingdom  of  Austria-Hungary,  from  Turkey  in  Europe  and 
Turkey  in  Asia,  from  Italy  and  China  and  Japan,  they  came.  There 
was  not  a  single  geographical  or  politically  organized  area  of  im- 
portance from  which  they  did  not  come.  England,  Ireland,  Scot- 
land, Wales,  Norway,  Sweden,  Denmark,  Holland,  Belgium,  Swit- 
zerland, France,  Spain,  Portugal,  Roumania,  Greece,  Armenia,  Per- 
sia, Syria,  Sicily  and  Sardinia,  the  Cape  Verde  and  Azores  Islands, 
the  Canary  and  Balearic  Islands,  British  Honduras,  Tasmania,  and 
New  Zealand,  the  Philippines,  Hawaii,  the  East  and  the  West  In- 
dies, Cuba,  Canada,  Mexico,  and  South  and  Central  American  coun- 
tries— each  and  all  and  more  were  represented. 

The  sources  of  this  stream  of  immigration  are  four  great  stocks 
of  the  human  race — the  Aryan,  the  Semitic,  the  Sinitic,  and  the 
Sibiric.  From  the  homes  of  these,  as  they  have  scattered  them- 
selves among  the  Teutonic,  Celtic,  Slavonic,  Lettic,  Italic,  Hellenic, 
lUyric,  Indo-Iranic,  Chaldean,  Chinese,  Japanese,  Finnic,  and  Tar- 
taric groups,  this  stream  is  pouring.  The  peoples  composing  it  are 
Scandinavians,  Dutch,  Flemish,  Germans,  English ;  Irish,  Welsh, 
Scotch;  Bohemians,  Dalmatians,  Moravians,  Croatians,  Poles,  Slov- 
enians, Bulgarians,  Russians,  Servians,  Ruthenians,  Montenegrins, 
Bosnians,  Herzegovinians,  Slovaks ;  Letts  and  Lithuanians ;  French. 

"Adapted  from  The  Immigrant  Invasion,  1-21.  Copyright  by  Dodd,  Mead 
&  Co.  (1913). 


POPULATION  AND  IMMIGRATION  469 

Italians,  Portuguese,  Roumanians,  and  Spaniards ;  Greeks :  Alban- 
ians ;  Armenians,  Persians,  and  Gypsies ;  Hebrews  and  Syrians ; 
Chinese ;  Japanese  and  Koreans ;  Finns  and  Magyars ;  and  Turks. 
Besides,  we  have  coming  to  us  Berbers  and  Arabs  from  northern 
Africa,  Bretons  from  western.  France,  Esthonians  from  western 
Russia,  Esquimaux  from  western  Alaska,  Spanish  Americans  from 
South  America.  And  not  even  all  these  exhaust  the  multitudinous 
sources  contributing  to  our  foreign-bom  population. 

Unlike  the  invasions  of  other  centuries  and  of  other  countries, 
the  present-day  immigration  to  the  United  States  is  not  by  organized 
armies  coming  to  conquer  by  the  sword.  It  is  made  up  of  detached 
individuals,  or  at  most,  of  family  or  racial  groups,  afoot,  the  sword 
not  only  sheathed  but  also  entirely  discarded  by  those  who  have 
no  idea  of  battling  with  arms  for  that  which  they  come  to  seek. 
They  do  not  come  as  arrried  horsemen,  with  their  herds  of  cattle 
and  skin-canopied  wagons.  Nor  do  they  present  themselves  at  our 
doors  in  "great  red  ships,"  with  the  ensign  of  the  rover  hanging 
from  the  topmast,  and  clad  in  chain-mail  shirts  and  with  helmets. 

More  than  twenty-eight  million  have  entered  the  United  States 
from  all  parts  of  the  world  during  the  ninety  years  since  1820!  In 
the  course  of  the  nineteenth  century,  and  the  first  decade  of  the 
twentieth  century,  there  came  more  than  five  million  from  Germany, 
four  million  from  Ireland,  more  than  three  million  from  each  of 
Austria-Hungary,  and  Italy,  three  million  from  England,  Scotland, 
and  Wales;  nearly  two  and  one-half  million  from  Russia;  nearly 
two  million  from  Norway,  Denmark,  and  Sweden ;  and  about  five 
hundred  thousand  from  France. 

More  than  twenty-five  million  immigrants  came  within  the  sixty 
years  since  1850;  and  more  than  nineteen  million  came  within  the 
last  thirty  years.  The  ten  years  ending  with  1910  gave  us  a  total 
immigration  exceeding  8,795,000,  nearly  five  million  of  those  arriv- 
ing within  the  past  five  years.  In  the  single  year  1910  the  number 
of  arrivals  exceeded  one  million  by  41,000;  in  the  twelve  months 
three  years  before  they  had  reached  1,285,000,  this  being  the  largest 
single  yearly  inflow  of  foreign  bom  in  the  history  of  the  country. 

Taking  the  average  for  the  past  ten  years,  we  find  that  there 
came  annually  more  than  eight  hundred  and  seventy-nine  thousand 
immigrants;  for  every  month  more  than  seventy-three  thousand: 
for  every  day,  Sundays  and  holidays  included,  two  thousand  four 
hundred  and  forty,  and  for  every  time  the  clock  struck  the  hour, 
day  and  night,  one  hundred  persons  bom  in  some  foreign  country 
landed  on  the  shores  of  the  United  States. 


470  CURRENT  ECONOMIC  PROBLEMS 

Truly  a  wonderful  invasion!  A  stupendous  army!  An  army 
that  has  been  marching  continually  all  these  years — an  army  whose 
ranks,  although  changing  racially,  have  not  been  depleted  but  have 
steadily  and  at  times  alarmingly  increased  in  numbers  as  the  decades 
have  gone  by.  Here  is  a  phenomenon  before  which  we  must  stand 
in  awe  and  amazement  when  contemplating  its  consequences  to  the 
human  race ! 

Think  you  that  any  such  numbers  invaded  the  Roman  world 
when  the  Huns  poured  in  from  the  East?  Was  Attila's  army  one- 
half,  even  one-tenth,  as  large  when  it  overran  Gaul  and  Italy?  Did 
the  Saxons  in  the  sixth  century  invade  England  in. any  such  num- 
bers? Or,  did  William  the  Conqueror  lead  any  such  army  in  the 
Norman  invasion  of  England  in  the  eleventh  century?  And  yet, 
upon  the  peoples  of  those  countries  the  mark  of  the  invader  is  seen 
to  this  day.  Think  you  that  America  alone  will  escape  the  conse- 
quences ? 

Let  us  look  at  the  volume  of  this  invasion  from  another  angle. 
There  were  in  the  United  States  in  1910  more  than  13,500,000  per- 
sons who  had  been,  born  in  some  foreign  country.  That  is,  one  out 
of  every  seven  of  our  population  came  here,  not  through  having 
been  bom  here,  but  through  immigration.  The  largest  contribu- 
tion was  from  Germany,  the  next  largest  from  Russia;  then  came 
Ireland  and  Italy  in  a  close  race  for  third  place,  the  number  of  the 
former  exceeding  those  from  Italy  by  less  than  ten  thousand.  Aus- 
tria, including  Bohemia  and  a  part  of  what  formerly  was  Poland, 
held  fifth  place;  Canada  was  in  sixth  and  England  in  seventh  place, 
Sweden  in  eighth,  Hungary  in  ninth,  and  Norway  in  tenth. 

These  ten  countries  contributed  more  than  11,600,000,  of  the 
13,500,000  or  all  but  1,900,000  of  our  foreign  born.  Their  propor- 
tion of  the  total  was  about  86  per  cent.  The  other  countries  or  geo- 
graphical and  political  divisions  represented  in  the  foreign-born 
population  of  the  United  States  in  1910  were  Scotland,  Wales,  Den- 
mark, Holland;  Belgium,  Luxemburg,  Switzerland,  Portugal,  Spain. 
France,  Finland,  Roumania,  Bulgaria,  Servia,  Montenegro,  Turkey, 
Greece,  Newfoundland,  Cuba,  West  Indies,  Mexico,  Central  Amer- 
ica, South  America,  Japan,  China,  India,  Asia,  Africa,  Australia, 
Atlantic  Islands,  Pacific  Islands,  and  other  countries  not  specified. 

Religiously  they  are  believers  in  Roman  and  Greek  Catholicism, 
Protestantism  in  its  manifold  forms  and  variations,  Mohammedan- 
ism, Armenianism,  Buddhism,  Confucianism,  Judaism,  Shamanism, 
Islamism,  Shintoism,  and  hundreds  of  diversified  sects,  some  with 
such  strange  names  as  Chiah,  Sunni,  Parsee,  Nestorian,  Maronite, 
Druse,  Osmanlis,  Laotse,  and  so  on. 


POPULATION  AND  IMMIGRATION  471 

Linguistically  they  are  German,  Dutch,  Scandinavian,  including 
Danish,  Norwegian,  and  Swedish,  Flemish,  English,  Gaelic,  Cym- 
ric, Slavic,  including  Russian,  Serbo-Croatian,  Polish,  and  Bohe- 
mian; French,  Italian,  Spanish,  Roumanian,  Portuguese,  Rheto- 
Roman,  Greek,  Albanian,  Lithuanian,  Lettic,  Armenian,  Persian. 
Yiddish,  Semitic,  Turkish,  Finnish,  Magyar,  Chinese,  Japanese, 
Korean,  Mexican,  Spanish  American,  and  other  groups  distinguish- 
ed by  the  language  they  speak.  Among  these  are  such  strange  and 
unfamiliar  dialects  as  Friesian,  Thuringian,  Franconian,  Swabian, 
Alsatian,  Wallon,  Gascon,  Languedocian,  Rhodanian,  Catalan,  Gal- 
ego,  Friulan,  Gegish,  Toskish,  Pamir,  Caspian,  Syriac,  Aramaic, 
Shkipetar,  and  so  on. 

Some  conception  of  the  significance  of  the  numerical  strength 
of  the  foreign  bom  in  the  United  States  is  gained  by  means  of  a 
few  simple  comparisons.  They  number  over  three  and  one-half 
millions  more  than  all  the  negro  population  of  the  entire  country.* 
They  equal  more  than  twice  the  total  population,  and  nearly  three 
times  that  of  the  native,  of  the  six  New  England  States ;  they  would 
populate  the  seven  states  of  Minnesota,  Iowa,  Missouri,  the  two 
Dakotas,  Nebraska,  and  Kansas,  with  their  present  density,  and  still 
have  an  extra  1,880,000;  they  supply  a  population  1,300,000  in  ex- 
cess of  the  total  found  today  in  the  South  Atlantic  division,  includ- 
ing, besides  the  District  of  Columbia,  also  Delaware,  Maryland,  the 
two  Virginias,  the  two  Carolinas,  Georgia,  and  Florida. 

Considering  the  native  population  only,  which  includes  also  the 
children  born  here  of  foreign-bom  parents,  our  total  foreign  bora 
equals  all  the  natives  in  the  twenty-two  states  of  Maine,  New  Hamp- 
shire, Vermont,  Massachusetts,  Rhode  Island,  Connecticut,  Dela- 
ware, Florida,  the  two  Dakotas,  Kansas,  Montana,  Idaho,  Wyom- 
ing, Colorado,  New  Mexico,  Arizona,  Utah,  Nevada,  Califomia, 
Oregon,  and  Washington. 

230.     Immigration  in  a  Single  Year^' 

BY  F.  A.  OGG 

It  is  not  easy  to  conceive  what  our  immigration  has  come  to  be. 
The  figures  are  too  stupendous  to  be  grasped  by  the  mind.  Let  one 
who  has  sat  in  the  magnificent  Stadium  at  Cambridge,  as  one  of  the 
40,000  spectators  at  a  Harvard- Yale  football  game,  reflect  that  if 
the  immigrants  entering  our  ports  during  the  fiscal  year  1906  were 
brought  together,  they  would  make  a  throng  twenty-five  and  a  half 
times  as  large  as  that  which  crowds  every  available  foot  of  space 

"From  an  article  in  The  World's  Work,  XIV,  8879^886.  Copyright 
(1907). 


472  CURRENT  ECONOMIC  PROBLEMS 

around  the  great  oval.  Let  him  consider  that  the  number  admitted 
in  this  twelvemonth  from  Norway  and  Sweden  alone  would  more 
than  fill  the  Stadium;  that  the  number  from  Germany  would  do 
the  same;  that  the  influx  from  Great  Britain  would  fill  it  two  and 
one-half  times.  That  from  Russia  would  fill  it  more  than  five 
times ;  that  from  Austria-Hungary  would  fill  it  more  than  six  times ; 
and  the  contributions  from  Italy  would  do  it  seven  times  with 
people  to  spare.  Let  him  further  call  to  mind  that,  on  the  average, 
the  Stadium  could  be  packed  with  the  aliens  who  are  landed  at  Ellis 
Island  every  seventeen  days  throughout  the  year. 

Then  let  him  consider  that  the  total  number  of  immigrants 
admitted  in  1906  would  nearly  serve  to  populate  either  the  city  of 
Philadelphia,  or  the  cities  of  Boston  and  Baltimore  combined ;  that, 
in  fact  it  would  people  all  Maryland,  or  all  Nebraska,  or  the  whole 
region  occupied  by  Arizona,  New  Mexico,  Utah,  Idaho,  Wyoming, 
and  Montana.  These  six  states  and  territories  have  an  aggregate 
area  of  649,320  square  miles,  which  is  nearly  18  per  cent  of  the 
total  area  of  the  United  States. 

231.     American  Appraisals  of  Immigration 

a)     The  Problem  of  Distribution^^ 

We  have  room  enough;  let  them  come.  But  the  immigrants 
should  pass  into  the  interior.  In  the  present  state  of  the  times  we 
seem  too  thick  on  the  maritime  frontier  already.  Within  there  is 
ample  and  profitable  employment  for  all,  in  almost  every  branch 
of  business,  and  strangers  should  be  encouraged  to  seek  it  there.  - 

h)     The  Old  Immigration  and  the  New^^ 

BY  S.  F.  B.  MORSE 

Then  we  were  few,  feeble,  and  scattered.  Now,  we  are  numer- 
ous, strong  and  concentrated.  Then  our  accessions  of  immigration 
were  real  accessions  of  strength  from  the  ranks  of  the  learned  and 
the  good,  from  enlightened  mechanic  and  artisan  and  .intelligent 
husbandman.  Now,  immigration  is  the  accession  of  weakness,  from 
the  ignorant  and  vicious,  or  the  priest-ridden  slaves  of  Ireland  and 
Germany,  or  the  outcast  tenants  of  the  poorhouses  and  prisons  of 
Europe. 

"Adapted  from  Niles'  Register,  VII,  359  (1817). 

^"Adapted  from  Imminent  Dangers  to  the  Institutions  of  the  United 
States  through  Foreign  Immigration,  etc.,  by  "An  American"  (1835). 


POPULATION  AND  IMMIGRATION  473 

c)     Not  Wjops,  hut  Irishmen^^ 

They  had  an  utter  disregard  for  felling  forests  and  turning  up 
the  prairies  for  themselves.  They  preferred  to  stay  where  another 
race  would  furnish  them  with  food,  clothing,  and  labor,  and  hence 
were  mostly  found  loitering  on  the  lines  of  the  public  works  in  vil- 
lages and  in  the  worst  portions  of  the  large  cities,  where  they  com- 
peted with  the  negroes,  between  whom  and  themselves  there  was  an 
inveterate  dislike,  for  the  most  degrading  employment. 

d)     Not  Like  the  Old  Immigrants'^ 

BY  M.  D.  IvICHUTER 

The  immigration  of  the  present  is  not  the  immigration  of  forty 
years  ago.  We  protest  against  the  admission  of  those  who  come  to 
this  country  whose  habits  and  manner  of  life  tear  down  the  standard 
of  American  life,  of  living,  and  of  wages,  and  whose  traits  of  char- 
acter, low  order  of  intelligence,  and  inferior  standard  of  life  renders 
it  impossible  for  them,  even  if  they  had  the  desire,  to  maintain  the 
highest  ideals  of  American  morality  and  citizenship. 

e)     Freedom  of  Opportunity^*' 

BY  HENRY  A.  RODENBURG 

It  has  long  been  our  proud  boast  that  ours  is  the  land  of  liberty 
and  opportunity.  Here  on  the  hospitable  shores  of  the  "home  of 
the  free"  the  persecuted  of  the  earth  have  always  found  a  refuge 
and  an  asylum.  We  recognize  neither  class  nor  caste,  nationality 
nor  religion.  Every  honest  immigrant,  no  matter  from  what  country 
he  hails,  whether  from  the  north  of  Europe,  the  south  of  Europe, 
the  east  of  Europe,  or  the  west  of  Europe,  if  able  to  meet  the  re- 
quirements of  our  liberal  immigration  laws,  is  invited  to  partake  of 
our  liberties  and  to  join  with  us  in  working  out  the  manifest  destiny 
of  the  American  Republic.  It  is  this  spirit  that  lies  at  the  basis  of 
our  national  greatness.  I  would  not  discriminate  against  the  Italian, 
the  Hungarian,  or  the  Pole.  I  have  not  forgotten  that  Columbus 
was  the  son  of  an  Italian  laborer.    I  have  not  forgotten  that  among 

'"Adapted  from  the  Report  of  the  Association  of  the  Condition  of  the 
Poor.    Reprinted  in  Report  of  the  Immigration  Commission,  XV,  462  (i860). 

'^Adapted  from  testimony  before  the  Immigration  Commission,  in  Re- 
ports, XLI,  16  (1910). 

"'Adapted  from  a  speech  delivered  in  the  House  of  Representatives,  July 
26,  191 2. 


474  CURRENT  ECONOMIC  PROBLEMS 

the  great  sculptors  and  artists  who  have  given  Italy  her  proud  place 
in  the  world  of  arts  are  the  sons  of  men  who  earned  their  bread  in 
the  sweat  of  their  brows.  Ah,  genius  knows  no  nationality,  and  is 
not  the  result  of  birth  or  location. 

D.     IMMIGRATION  AND  INDUSTRIAL  DEVELOPMENT 
232.     Our  Industrial  Debt  to  Immigrants'^ 

BY  PETUR  ROBERTS 

The  new  immigration  in  one  respect  differs  very  markedly  from 
the  old;  the  percentage  of  farmers  and  farm  laborers  in  this  new 
stream  is  sixfold  what  it  y^as  in  the  old.  In  the  last  decade,  the 
countries  of  southeastern  Europe  have  sent  us  two  and  a  half  mil- 
lion men,  who,  in  the  old  country,  were  tillers  of  the  soil ;  but  it 
is  safe  to  say  that  the  number  following  that  occupation  in  the  new 
world  is  insignificant.  They  are  employed  in  industrial  plants,  in 
which  their  labor  brings  quick  returns,  and  if  dissatisfied  with 
wages  and  conditions  they  can,  in  a  day,  pull  up  stakes  and  go 
elsewhere.  The  new  immigration  consequently  contains  more  un- 
skilled workers  than  the  old. 

America,  two  ^generations  ago,  was  an  agricultural  nation;  to- 
day it  stands  in  the  van  of  the  industrial  nations  of  the  earth.  This 
marvelous  development,  the  astonishment  of  the  civilized  world, 
could  never  have  taken  place,  if  Europe  and  Asia  had  not  supplied 
the  labor  force.  From  1880  to  1905  the  total  capital  in  manufac- 
turing plants  increased  nearly  fivefold,  the  value  of  the  products 
increased  more  than  two  and  a  half  times,  and  the  labor  force 
about  doubled.  America  could  never  have  finished  its  transcon- 
tinental railroads,  developed  its  coal  and  ore  deposits,  operated  its 
furnaces  and  factories,  had  it  not  drawn  upon  Europe  for  its  labor 
force ;  for  it  was  impossible  to  secure  "white  men"  to  do  this  work. 

American  industry  had  a  place  for  the  stolid,  strong,  submis- 
sive and  patient  Slav  and  Finn ;  it  needed  the  mercurial  Italian  and 
Roumanian ;  there  was  much  coarse,  rough,  and  heavy  work  to  do 
in  mining  and  construction  camps;  in  tunnel  and  railroad  building; 
around  smelters  and  furnaces,  etc.,  and  nowhere  in  the  world  could 
employers  get  laborers  so  well  adapted  to  their  need,  as  in  the 
countries  of  southeastern  Europe. 

Louis  N.  Hammerling,  President  of  the  American  Association 
of  Foreign  Newspapers,  appearing  before  the  Federal  Commission 

*' Adapted  from  The  New  Immigration,  49-62.  Copyright  by  The  Mac- 
niillan  Company  {1^12). 


POPULATION  AND  IMMIGRATION  475 

on  Immigration,  said :  ( i )  Sixty-five  per  cent  of  the  farmers 
owning  farms  and  working  as  farm  laborers  are  people  who  came 
from  Europe  during  the  last  thirty  years.  (2)  Of  the  890,000 
miners,  mining  the  coal  to  operate  the  great  industries,  630,000 
are  our  people.  (3)  Of  the  580,000  steel  and  iron  woricers  em- 
ployed in  the  different  plants  throughout  the  United  States, -69  per 
cent,  according  to  the  latest  statistics  of  the  steel  and  iron  indus- 
tries, are  our  people.  (4)  Ninety  per  cent  of  the  labor  employed 
for  the  last  thirty  years  in  building  the  railways  has  been  furnished 
by  our  immigrant  people,  who  are  now  keeping  the  same  in  re- 
pair. 

The  census  of  1900  showed  that  75  per  cent  of  the  tailors  of  the 
country  were  foreign-bom.  The  investigation  of  the  Immigration 
Commission  showed  72.2  per  cent  of  the  workers  in  the  clothing 
trades  foreign-bom,  and  another  22.4  per  cent  was  made  up  of 
the  children  of  foreign-born  parents ;  thus  94.6  per  cent  of  the  men 
and  women  who  manufacture  ready-made  garments  are  of  foreign 
parentage. 

Wherever  unskilled  work  is  needed,  the  foreigner  is  the  one 
who  does  it.  He  is  the  toiler,  the  dmdge,  the  "choreman."  In  the 
slaughtering  and  meat-packing  industry,  the  foreign-born  comprise 
about  60  per  cent  of  the  labor  force,  but  if  you  want  to  locate  the 
sons  of  the  new  immigration  in  a  plant  of  this  character,  you  must 
descend  to  the  pits  where  the  hides  are  cured,  generally  located  in 
dark  and  damp  basements.  Go  to  the  fertilizing  plant  where  the 
refuse  of  the  slaughter  house  is  assembled,  and  amid  the  malodor- 
ous smells  which  combine  into  one  rank  stench  tabooed  by  all  Eng- 
lish-speaking men,  you  'find  the  foreigner.  Go  to  the  soap  depart- 
ment, where  the  fats  are  reduced  and  the  alkalis  are  mixed — a  place 
you  smell  from  afar  and  wish  to  escape  from  as  soon  as  possible, 
and  there  the  foreigner  is  found.  These  disagreeable  occupations 
"white  people"  have  forsaken,  and  the  sons  of  the  new  immigration 
do  the  work  uncomplainingly  for  $1.50  a  day. 

Wherever  digging,  excavating,  constructing,  machine  molding, 
and  mining  go  on,  there  we  find  the  foreign-bom.  The  patient, 
willing,  and  constant  labor  of  the  Italians  made  possible  the  sub- 
ways of  the  great  metropolis  of  the  nation ;  the  Bronx  Sewer  was 
dug  by  Italians,  Austrians,  and  Russians.  These  are  the  workers 
who  enlarge  the  Barge  Canal  and  build  the  Aqueduct  to  carry  an 
adequate  supply  of  water  to  the  millions  of  New  York  City.  In 
lumber  camps,  in  mine  patches,  in  railroad  construction  work,  the 
foreigner  is  found.  He  displaces  colored  labor  in  constmction 
camps  in  the  South ;  and,  in  the  West,  he  does  the  unskilled  labor 


476  CURRENT  ECONOMIC  PROBLEMS 

unless  a  legal  barrier  has  been  erected  to  keep  him  out.  The  labor 
force  in  the  woods  of  Michigan  and  Minnesota,  of  Maine  and  Ver- 
mont, is  preponderatingly  made  up  of  foreigners. 

The  aliens  are  the  backbone  of  the  mining  industry.  Calumet, 
in  the  northern  peninsula  of  Michigan,  is  a  foreign  city  of  45,000 
souls.  -There  are  sixteen  different  nationalities  represented  on  the 
public  school  teaching  force,  and  the  pupils  in  the  high  school 
represent  twenty  different  races.  It  is  difficult  to  find  an  Amer- 
ican in  the  place.  If  you  want  to  find  the  native-born,  you  must 
go  to  Houghton,  the  capital  of  the  county,  where  the  doctors  and 
lawyers,  engineers  and  professors,  retired  capitalists  and  the  leisure 
class  live.  And  it  is  the  same  in  the  mining  camps  all  through 
this  upper  peninsula  of  Michigan.  The  men  who  dig  the  ore,  load 
it  and  clean  it,  who  burn  the  powder  and  remove  the  rock,  who 
crawl  through  dog  holes  and  climb  numberless  ladders,  are  for- 
eigners. The  only  crowd  met  with  in  the  territory  not  of  foreign 
parentage  are  the  young  college  graduates,  incipient  civil  engineers, 
who  put  into  practice  the  theories  they  were  taught  in  college.  The 
same  is  true,  generally  speaking,  of  the  coal  mining  industry. 

The  United  States  owes  much  to  the  man  of  the  new  immi- 
gration.  No  true  American  will  withhold  the  meed  of  praise  due 
this  man.  The  consensus  of  opinion  of  superintendents  and  fore- 
men who  have  used  these  men  is  that  they  have  played  their  part 
with  a  devotion,  amiability,  and  steadiness  not  excelled  by  men  of 
the  old  immigration. 

233.     The  Manna  of  Cheap  Labor^* 

BY  KDWARD  ALSWORTH  ROSS 

It  is  not  as  cargo  that  the  immigrant  yields  his  biggest  dividends. 
But  for  him  we  could  not  have  laid  low  the  many  forests,  dug  up  so 
much  mineral,  set  going  so  many  factories,  or  built  up  such  an  export 
trade  as  we  have.  In  most  of  our  basic  industries  the  new  immi- 
grants constitute  at  least  half  the  labor  force.  Although  millions 
have  come  in  there  is  no  sign  of  supersaturation,  no  progressive 
growth  of  lack  of  employment.  Somehow  new  mines  have  been 
opened  and  new  mills  started  fast  enough  to  swallow  them  up.  Vir- 
tually all  of  them  are  at  work  and,  what  is  more,  at  work  in  an  effi- 
cient system,  under  intelligent  direction.  Janko  produces  more  than 
he  did  at  home,  consumes  more,  and,  above  all,  makes  more  profit 
for  his  employer  than  the  American  he  displaces.    Thanks  to  him 

^'Adapted  from  "The  Old  World  in  the  New,"  in  The  Century  Magazine, 
LXXXVII,  29.    Copyright  (1913). 


POPULATION  AND  IMMIGRATION  477 

we  have  bigger  outputs,  tonnages,  trade  balances,  fortunes,  tips,  and 
alimonies ;  also  bigger  slums,  red-light  districts,  breweries,  hospitals, 
and  death  rates. 

To  the  employer  of  unskilled  labor  this  flow  of  aliens,  many  of 
them  used  to  dirt  floors,  a  vegetable  diet,  and  child  labor,  and  ignor 
ant  of  underclothing,  newspapers,  and  trade  unions,  is  like  a  rain  of 
manna.  For,  as  regards  foreign  competition,  his  own  position  is  a 
Gibraltar.  Our  tariff  has  been  designed  to  protect  him.  Thus  as 
long  as  he  stays  in  his  home  market,  the  American  mill  owner  is 
shielded  from  foreign  competition,  while  the  common  labor  he,  re- 
quires is  cheapened  for  him  by  the  endless  inflow  of  the  neediest, 
meekest  laborers  to  be  found  within  the  white  race.  If  in  time  they 
become  ambitious  and  demanding,  there  are  plenty  of  "greenies" 
he  can  use  to  teach  them  a  lesson.  The  "Hunkies"  pay  their  "bit" 
to  the  foremen  for  the  job,  are  driven  through  the  twelve-hour  day, 
and  in  time  are  scrapped  with  as  little  concern  as  one  throws  away 
a  thread-worn  bolt.  A  plate  mill  which  had  experienced  no  tech- 
nical improvement  in  ten  years  doubled  its  production  per  man  by 
driving  the  workers.  No  wonder  then  that  in  the  forty  years  the 
American  capitalist  has  had  Aladdin's  lamp  to  rub,  his  profits 
from  mill  and  steel  works,  from  packing-house  and  glass  factory, 
have  created  a  sensational  "prosperity"  of  which  a  constantly 
diminishing  part  leaks  down  to  the  wage-earners.  Nevertheless, 
the  system  which  allows  the  manufacturer  to  buy  at  a  semi-European 
wage  much  of  the  labor  that  he  converts  into  goods  to  sell  at  an 
American  price  has  been  maintained  as  "the  protection  of  Amer- 
ican labor!" 

E.     IMMIGRATION  AND  LABOR  CONDITIONS 
234.     Living  Conditions  among  Home  Laborers^** 

BY  CHARIvES  DICKENS 

These  girls  were  all  well  dressed;  and  that  phrase  necessarily 
includes  extreme  cleanliness.  They  had  serviceable  bonnets,  good 
warm  cloaks  and  shawls,  and  were  not  above  clogs  and  pattern. 
Moreover,  there  were  places  in  the  mill  where  they  could  deposit 
these  things  without  injury ;  and  there  were  conveniences  for  wash- 
ing. They  were  healthy  in  appearance,  and  had  the  manners  and 
deportment  of  young  women ;  not  of  degraded  brutes  of  burden. 

The  rooms  in  which  they  worked  were  as  well  ordered  as  them- 
selves.    In  the  windows  of  some  there  were  green  plants  which 

** Adapted  from  American  Notes,  56-57  (1841). 


478  CURRENT  ECONOMIC  PROBLEMS 

were  trained  to  shade  the  glass;  in  all,  there  was  very  much  fresh 
air,  cleanliness,  and  comfort  as  the  nature  of  the  occupation  would 
possibly  admit  of.  Out  of  so  large  a  number  of  females,  it  may 
reasonably  be  supposed  that  some  were  delicate  and  fragile  in  ap- 
pearance; no  doubt  there  were.  But  I  solemnly  declare  that,  from 
all  the  crowd  I  saw  in  the  different  factories  that  day,  I  cannot  recall 
one  young  face  that  gave  me  a  painful  impression ;  not  one  young 
girl,  assuming  it  to  be  a  matter  of  necessity  that  she  should  gain 
her  daily  bread  by  the  labor  of  her  hands,  I  would  have  removed 
from  those  works  if  I  had  had  the  power. 

They  reside  in  various  boarding-houses  near  at  hand.  The  own- 
ers of  the  mills  are  particularly  careful  to  allow  no  persons  to  enter 
upon  the  possession  of  these  houses  whose  characters  have  not  un- 
dergone the  most  searching  and  thorough  inquiry.  Any  complaint 
that  is  made  against  them  is  fully  investigated,  and  if  good  ground 
for  complaint  be  shown,  their  occupation  is  handed  over  to  some 
more  deserving  person.  There  are  a  few  children  employed  in  these 
factories,  but  not  many.  The  laws  of  the  state  forbid  their  working 
more  than  nine  months  in  the  year,  and  require  that  they  be  edu- 
cated during  the  other  three.  For  this  purpose  there  are  schools  in 
Lowell,  and  there  are  churches  and  chapels  of  various  persuasions, 
in  which  the  young  women  may  observe  that  form  of  worship  in 
which  they  have  been  educated. 

I  am  now  going  to  state  three  facts  which  will  startle  a  large 
class  of  readers  on  this  side  of  the  Atlantic  very  much.  Firstly, 
there  is  a  joint  stock  piano  in  a  great  many  of  the  boarding-houses. 
Secondly,  nearly  all  of  these  young  ladies  subscribe  to  circulating 
libraries.    Thirdly,  they  have  got  up  among  themselves  a  periodical. 


235.     The  Standard  of  Living  of  the  New  Immigrants^* 

BY  I.  A.  HOURWICH 

The  objection  to  the  unskilled  immigrant  is  based  upon  the 
belief  that  because  of  his  lower  standard  of  living  he  is  satisfied 
with  lower  wages  than  the  American  or  the  older  immigrant.  It 
is  therefore  taken  for  granted  that  the  effect  of  the  great  tide  of 
immigration  in  recent  years  has  been  to  reduce  the  rate  of  wages 
or  to  prevent  it  from  rising.  The  fallacy  of  this  reasoning  is  due 
to  an  attempt  to  compare  the  standard  of  living  of  the  unskilled 
laborer  with  that  of  the  skilled  mechanic.    To  prove  that  the  newer 

*•  Adapted  from  Immigration  and  Labor,  19-22.  Copyright  by  G.  P.  Put- 
nam's Sons  (1912). 


POPULATION  AND  IMMIGRATION  479 

immigrants  have  introduced  a  lower  standard  of  living",  the  latter 
ought  to  be  compared  with  the  standard  of  living  of  unskilled 
laborers  in  the  past. 

Housing  conditions  have  been  most  dwelt  upon,  because  they 
strike  the  eye  of  the  outsider.  Historical  studies  of  housing  con- 
ditions show,  however,  that  congestion  was  recognized  as  a  serious 
evil  in  New  York  City  as  far  back  as  the  first  half  of  the  nine- 
teenth century.  The  evil  was  not  confined  to  the  foreign-bom 
population.  American-born  working-women  lived  on  filthy  streets 
in  poorly  ventilated  houses,  crowding  in  one  or  two  rooms,  which 
were  used  both  as  dwelling  and  workshop.  No  better  were  the 
living  conditions  of  the  daughters  of  American  farmers  in  the  mill 
towns  of  New  England.  They  lived  in  company  houses,  half  a 
dozen  in  one  attic  room,  without  tables  or  chairs,  or  even  wash- 
stands.  The  typical  tenement  house  in  the  Jewish  and  Italian 
section  of  New  York  today  is  a  decided  improvement  upon  the 
dwellings  of  the  other  immigrant  races  in  the  same  sections  a 
generation  or  two  ago.  On  the  other  hand,  in  the  South,  where 
many  of  the  coal  mines  are  operated  without  immigrant  labor  and 
native  white  Americans  are  employed,  their  homes  are  primitive 
and  unsanitary.  The  cause  of  bad  housing  conditions  is  not  racial, 
but  economic.  Congestion  in  the  cities  is  produced  by  industrial 
factors,  over  which  the  immigrants  have  no  control.  The  funda- 
mental cause  is  the  necessity  for  the  wage- worker  to  live  within  an 
accessible  distance  from  his  place  of  work.  Moreover,  the  recent 
immigrants  are  mostly  concentrated  in  great  cities,  where  rent  is 
high,  while  the  native  American  workmen  live  mostly  in  small  towns 
with  low  rents. 

Nor  are  the  food  standards  of  *the  recent  immigrant  inferior 
to  those  of  native  Americans  with  the  same  income.  Meat  is  con- 
stuned  by  the  Slav  in  larger  quantities  than  by  native  Americans. 
Rent  and  food  claim  by  far  the  greater  part,  of  the  workman's 
wages.  It  is  thus  apparent  that  whatever  may  have  been  the  immi- 
grant's standard  of  liWng  in  his  home  country,  his  expenditure  in 
the  United  States  is  determined  by  the  prices  ruling  in  the  United 
States.  Contrary  to  common  assertion,  the  living  expenses  of  the 
native  American  workman  in  small  cities  and  rural  districts  are 
lower  than  those  of  the  recent  immigrants  in  the  great  industrial 
centres.  It  is  therefore  not  the  recent  immigrant  that  is  able  to 
underbid  the  native  American  workman,  but  it  is,  on  the  contrary, 
the  latter  that  is  in  a  position  to  accept  a  cheaper  wage. 

Of  course  the  expenses  of  a  single  man  are  necessarily  lower 
than  those  of  a  man  with  a  family,  and  a  large  proportion  of  recent 


480  CURRENT  ECONOMIC  PROBLEMS 

immigrants  either  are  single,  or  have  left  their  families  abroad. 
But,  while  an  unmarried  American  workman  may  either  save  or 
spend  the  difference,  the  recent  immigrant  is  obliged  to  save  a  part 
of  his  earnings.  So  when  a  recent  immigrant  is  seen  to  deny  himself 
every  comfort  in  order  to  reduce  his  personal  expenses  to  a  mini- 
mum, it  is  a  mistake  to  assume  that  he  will  accept  a  wage  just 
sufficient  to  provide  for  his  own  subsistence.  The  Italian  section- 
hand  who  lives  on  vegetables  does  not  save  money  for  the  railroad 
company.  The  economic  interests  of  the  American  wage-earner 
are  therefore  not  aflfected  by  the  tendency  of  the  recent  immigrant 
to  live  as  cheaply  as  possible  and  to  save  as  much  as  possible.  Even 
if  he  merely  sends  his  money  home,  his  wants  are  as  urgent  as 
those  of  the  American  laborer  who  spends  his  all,  and  he  must  de- 
mand a  wage  that  will  enable  him  to  satisfy  them. 

Even  if  the  standard  of  living  of  the  native  wage-earners  be 
higher,  it  is  often  maintained  with  the  earnings  of  children,  whereas 
the  Southern  and  Eastern  European  immigrants  are  mostly  young 
people  w^hose  children  have  not  yet  reached  working  age. 

236.     Immigration  and  Wages" 

BY  I.  A.   HOURWICH 

The  primary  cause  which  has  determined  the  movement  of  wages 
in  the  United  States  during  the  past  thirty  years  has  been  the 
introduction  of  labor-saving  machinery.  The  effect  of  the  substi- 
tution of  mechanical  devices  for  human  skill  is  the  displacement 
of  the  skilled  mechanic  by  the  unskilled  laborer.  This  tendency 
has  been  counteracted  in  the  United  States  by  the  expansion  of 
industr)' ;  while  the  ratio  of  skilled  mechanics  to  the  total  operating 
force  was  decreasing,  the  increasing  scale  of  operations  prevented 
an  actual  reduction  in  numbers.  Of  course  this  adjustment  did  not 
proceed  without  friction.  While,  in  the  long  run,  there  has  been 
no  displacement  of  skilled  mechanics  by  unskilled  laborers  in  the 
industrial  field  as  a  whole,  yet  at  certain  time*  and  places  individual 
skilled  mechanics  were  doubtless  dispensed  with  and  had  to  seek 
new  employment.  The  unskilled  laborers  who  replaced  them  were 
naturally  engaged  at  lower  wages.  The  fact  that  most  of  these 
unskilled  laborers  were  immigrants  disguised  the  substance  of  the 
change — the  substitution  of  unskilled  for  skilled  labor — and  made 
it  appear  as  the  displacement  of  highly  paid  native  by  cheap  immi- 
grant labor. 

*^ Adapted  from  Immigration  and  Labor,  23-26.    Copyright  by  G.  P.  Put- 
nam's Sons  (1912). 


POPULATION  AND  IMMIGRATION  481 

To  prove  that  immigration  has  virtually  lowered  the  rates  of 
wages  would  require  a  comparative  study  of  wages  paid  for  the 
same  class  of  labor  in  various  occupations  before  and  after  the 
great  influx  of  immigrants.  This,  however,  has  never  been  at- 
tempted by  the  advocates  of  restriction.  In  fact,  the  chaotic  state  of 
our  wage  statistics  precludes  any  but  a  fragmentary  comparison 
for  diflFerent  periods.  In  a  general  way,  however,  all  available  data 
for  the  period  of  "the  old  immigration"  agree  that  the  wages  of 
unskilled  laborers,  and  even  of  some  of  the  skilled  mechanics  did 
not  fully  provide  for  the  support  of  the  wage-earner  and  his  family 
in  accordance  with  their  usual  standards  of  living.  The  shortage 
had  to  be  made  up  by  the  labor  of  the  wife  and  the  children. 

If  the  tendency  of  the  new  immigration  were  to  lower  the  rates 
of  wages  or  to  retard  the  advance  of  wages,  it  should  be  expected 
that  wages  would  be  lower  in  great  cities  where  the  recent  immi- 
grants are  concentrated,  than  in  rural  districts  where  the  population 
is  mostly  of  native  birth.  All  wage  statistics  concur,  however,  in 
the  opposite  conclusion.  Since  the  United  States  has  become  a 
manufacturing  country  average  earnings  per  worker  have  been 
higher  in  the  cities  than  in  the  country.  The  same  difference  exists 
within  the  same  trades  between  the  large  and  the  small  cities. 
Country  competition  of  native  Americans  often  acts  as  a  depressing 
factor  upon  the  wages  of  recent  immigrants.  This  fact  has  been 
demonstrated  in  the  clothing  industry,  in  the  cotton  mills,  and  in 
the  coal  mines. 

Furthermore,  if  immigration  tends  to  depress  wages,  this  ten- 
dency must  manifest  itself  in  lower  average  earnings  in  states  with 
a  large  immigrant  population  than  in  states  with  a  predominant 
native  population.  No  such  tendency,  however,  is  discernible  from 
wage  statistics.  As  a  rule,  annual  earnings  are  higher  in  States 
with  higher  percentage  of  foreign-bom  workers. 

The  conditions  in  some  of  the  leading  industries  employing 
large  numbers  of  recent  immigrants  point  to  the  same  conclusions. 
In  the  Pittsburgh  steel  mills  the  rates  of  wages  of  various  grades 
of  employees  have  varied  directly  with  the  proportion  of  recent 
immigrants.  The  wages  of  the  aristocrats  of  labor,  none  of  whom 
are  Southern  or  Eastern  Europeans,  have  been  reduced  in  some 
cases  as  much  as  40  ppr  cent;  the  money  wages  of  the  skilled  and 
semi-skilled  workers,  two-thirds  of  whom  are  natives  or  old  immi- 
grants, have  not  advanced  notwithstanding  the  increased  cost  of 
living,  while  the  wages  of  the  unskilled  laborers,  the  bulk  of  whom 
are  immigrants  from  Southern  and  Eastern  Europe,  have  been 
going  up. 


482  CURRENT  ECONOMIC  PROBLEMS 

In  the  cotton  mills  of  New  England  the  last  quarter  of  the  nine- 
teenth century,  when  the  operatives  were  practically  all  of  the 
English-speaking  races,  was  a  period  of  intermittent  advances  and 
reductions  in  wages ;  on  the  whole,  wages  remained  stationary.  The 
first  years  of  the  present  century,  up  to  the  crisis  of  1908,  were 
marked  by  the  advent  of  the  Southern  and  Eastern  Europeans  into 
the  cotton  mills,  and  by  an  uninterrupted  upward  movement  of 
wages.  The  competition  of  the  cheap  American  labor  of  the 
Southern  cotton  mills,  however,  tends  to  keep  down  the  wages  of 
the  Southern  and  Eastern  European,  Armenian,  and  Syrian  immi- 
grants employed  in  the  New  England  mills. 

As  a  general  rule,  the  employment  of  large  numbers  of  recent 
immigrants  has  gone  together  with  substantial  advances  in  wages. 
This  correlation  between  the  movements  of  wages  ^and  immigra- 
tion is  not  the  manifestation  of  some  mysterious  racial  trait,  but 
the  plain  working  of  the  law  of  supply  and  demand.  The  em- 
ployment of  a  high  percentage  of  immigrants  in  any  section,  in- 
dustry, or  occupation,  is  an  indication  of  an  active  demand  for 
labor  in  excess  of  the  native  supply.  Absence  of  immigrants  is  a 
sign  of  a  dull  labor  market. 


237.    The  Elevation  of  the  Native  Laborer-® 

BY  WILLIAM  S.  ROSSITER 

It  must  not  be  overlooked  that  society  in  the  United  States  has 
been  so  constructed  as  to  depend  upon  the  continued  arrival  of 
large  numbers  of  foreigners.  In  consequence,  labor  conditions 
prevailing  in  this  nation  differ  radically  from  those  which  prevail 
in  most  of  the  countries  of  Europe,  where  all  economic  require- 
ments are  met  by  natives.  In  England,  in  France,  or  in  Germanv. 
for  example,  the  man  who  sweeps  the  streets,  the  laborer  upon 
public  works  or  in  mines,  and  the  woman  who  cooks  or  performs 
other  domestic  duties,  are  as  truly  native  as  the  ruler  of  the  nation 
or  the  statesmen  who  guide  its  destinies.  In  the  United  States,  the 
man  who  sweeps  the  streets,  who  labors  upon  public  works,  in  mines 
or  on  railroads,  and  the  woman  engaged  in  domestic  service,  if 
white,  are  almost  all  of  foreign  birth.  The  n3.tive  stock  has  learned 
to  regard  such  callings  as  menial  and  hence  as  lowering  to  self- 
respect.  Having  accepted  the  education  and  opportunity  which  the 
Republic  offers  them,  native  Americans  appear  to  consider  that  they 

"'Adapted  from  "A  Common-Sense  View  of  the  Immigration  Problem," 
in  the  North  American  Review,  CLXXXVIII,  368-371.    Copyright  (1908). 


POPULATION  AND  IMMIGRATION  483 

are  untrue  to  themselves  if  they  do  not  avoid  humble  occupations 
and  seek  those  regarded  as  an  advance  in  the  social  scale.  There 
is,  therefore,  a  constant  movement  away  from  the  lower  callings 
toward  the  higher;  and  occupants  for  the  places  thus  vacated  are 
recruited  from  foreigners.  They  in  their  turn  become  imbued  with 
the  American  idea,  acquire  confidence  and  develop  ambition,  and 
their  children  abandon  to  newer  arrivals  the  callings  which  support- 
ed their  parents.  Evidence  of  this  continued  movement  upward  is 
seen  in  the  unwillingness,  not  only  of  the  native  stock  but  of  the 
children  of  the  foreign  element,  to  continue  in  the  servant  or  so- 
called  menial  classes,  and  in  the  determination  on  the  part  of  young 
women  to  become  shop  girls,  telephone-operators,  typewriters  and 
shop  and  factory  operatives,  oftentimes  at  the  penalty  of  severe 
privation,  rather  than  to  go  out  to  service. 

This  tendency  creates  the  problem  of  a  constant  shortage  ot 
workers  in  the  humbler  callings.  These  callings  in  themselves"are 
as  necessary  in  a  republic  as  in  an  empire.  Therefore  workers  in 
such  occupations  must  in  the  future,  as  in  the  past,  continue  to  be 
recruited  from  abroad,  or  else  a  large  number  of  native  Americans, 
and  children  of  foreign  parents,  must  be  contented  to  labor  un- 
complainingly in  the  lower  walks  of  life.  It  is  possible  that  the 
former  condition  may  continue  indefinitely,  but  it  unquestionably 
tends  toward  instability,  for  a  nation  which  permanently  meets  by 
importation  its  demand  for  workers  is,  in  a  sense,  artificially  con- 
striTcted. 

When  the  young  United  §tates  started  upon  a  career  of  inde- 
pendence, the  inhabitants  concentrated  their  efforts  upon  the  de- 
velopment of  national  resources.  They  prayed  for  wealth,  and 
Providence  gave  them  the  immigrant  as  the  means  of  securing  it. 
After  the  lapse  of  a  century,  our  success  surpasses  the  wildest 
dreams  of  our  ancestors ;  the  United  States  has  growti  marvelously 
in  numbers,  and  has  obtained  a  prosperity  unprecedented  in  the 
history   of   the  world. 

It  is  unlikely  that  our  portals,  thus  far  ever  open  to  the  aliens  of 
all  Europe,  will  be  closed  to  them  until  it  has  been  conclusively 
shown  that  the  existence  of  the  nation  is  imperiled  by  their  com- 
ing, or  until  large  numbers  of  worthy  and  industrious  American 
citizens  are  obviously  deprived  of  their  means  of  livelihood  by  the 
arriving  throngs  of  foreigners.  At  the  present  time  there  is  nothing 
which  points  to  the  realization  of  these  conditions ;  and,  until  there 
is,  discussion  concerning  the  restriction  is  in  reality  idle.  Therefore 
let  us  be  practical,  nursing  no  delusions,  and  face  conditions  as 


484  CURRENT  ECONOMIC  PROBLEMS       , 

they  are.  We  have  always  needed  the  immigrant  to  aid  us  in 
amassing  wealth,  and  we  shall  need  him  in  the  future,  for  the 
United  States  has  now  become  the  great  labor  mart  of  the  world. 

238.     The  Industrial  Menace  of  the  Immigrant-" 

BY  EDWARD  AI,S WORTH  ROSS 

The  facts  assembled  by  the  Immigration  Commission  shatter 
the  rosy  theory  that  foreign  labor  is  drawn  into  an  industry  only 
when  native  labor  is  not  to  be  had.  The  Slavs  and  Magyars  were  in- 
troduced into  Pennsylvania  forty-odd  years  ago  by  mine  operators 
looking  for  more  tractable  miners.  Agents  were  sent  abroad  to 
gather  up  labor,  and  frequently  foreigners  were  brought  in  when  a 
strike  was  on.  The  first  instance  seems  to  have  occurred  at  Drifton 
in  1870  and  resulted  in  the  importation  of  two  shiploads  of  Hun- 
garians. In  1904,  during  a  strike  in  the  coal-fields,  near  Birming- 
ham, Alabama,  many  southern  Europeans  were  brought  in.  In  1908 
"the  large  companies  imported  a  number  of  immigrants,"  so  that 
the  strike  was  broken  and  unionism  destroyed  in  that  region.  Dur- 
ing the  1907  strike  in  the  iron  mines  of  northern  Minnesota,  "one 
of  the  larger  companies  imported  large  numbers  of  Montenegrins 
and  other  Southeastern  races  as  strike-breakers." 

The  hegira  of  the  English-speaking  soft-coal  miners  shows  what 
must  happen  when  low-standard  men  undercut  high-standard  men. 
The  miners  of  Pennsylvania  and  West  Virginia,  finding  their  unions 
wrecked  and  the  lot  growing  worse  under  the  floods  of  men  from 
southern  and  eastern  Europe,  migrated  in  great  numbers  to  the  Mid- 
dle West  and  the  Southwest.  But  of  late  the  coal  fields  of  the  Mid- 
dle West  have  been  invaded  by  multitudes  of  Italians,  Croatians, 
and  Lithuanians,  so  that  even  here  American  and  Americanized 
miners  have  their  backs  to  the  wall.  As  for  the  displaced  trade- 
unionists  who  sought  asylum  in  the  mines  of  Oklahoma  and  Kansas, 
the  pouring  in  of  raw  immigrants  has  weakened  their  bargaining 
power,  and  many  have  gone  on  to  make  a  last  stand  in  the  mines 
of  New  Mexico  and  Colorado. 

Each  exodus  left  behind  an  inert  element  which  accepted  the 
harder  conditions  that  came  in  with  the  immigrants,  and  a  strong 
element  that  rose  to  better  conditions  in  the  mines  and  in  other  occu- 
pations. As  for  the  displaced,  the  Iliad  of  their  woes  has  never  been 
simg — the  loss  of  homes,  the  shattering  of  hopes,  the  untimely  set- 

"Adapted  from  "The  Old  World  in  the  New,"  in  The  Century  Magazine, 
LXXXVII,  29-33.    Copyright  (191-3). 


POPULATION  AND  IMMIGRATION  485 

ting  to  work  of  children,  the  struggle  for  a  new  foothold,  and  the 
turning  of  thousands  of  self-respecting  men  into  day  laborers,  odd- 
job  men,  down-and-outers,  and  "hobos." 

During  the  last  fifteen  years  the  flood  of  gold  has  brought  in  a 
spring-tide  of  prices.  Since  1896  the  retail  cost  to  Americans  of 
their  fifteen  principal  articles  of  food  has  risen  70  per  cent.  Wages 
should  have  risen  in  like  degree  if  the  workman  is  to  maintain  his 
old  standard,  to  say  nothing  of  keeping  his  place  in  a  social  proces- 
sion which  is  continually  mounting  to  higher  economic  levels. 
But  the  workingman  has  been  falling  behind  in  the  procession.  In 
the  soft-coal  field  of  Pennsylvania,  where  the  Slav  dominates,  the 
coal-worker  receives  42  cents  a  day  less  than  the  coal-worker  in  the 
mines  of  the  Middle  West  and  Southwest,  where  he  does  not  dom- 
inate. In  meat-packing,  iron  and  steel,  cotton  manufacture,  and 
other  foreignized  industries  the  inertia  of  wages  has  been  very 
marked.  The  presence  of  the  immigrant  has  prevented  a  wage  ad- 
vance which  otherwise  must  have  occurred. 

What  a  college  man  saw  in  a  copper  mine  in  the  Southwest  gives 
in  a  nutshell  the  logic  of  low  wages.  The  American  miners  getting 
$2.75  a  day  are  abruptly  displaced  without  a  strike  by  a  train  load 
of  five  hundred  raw  Italians  brought  in  by  the  company  and  put  to 
work  at  from  $1.50  to  $2.00  a  day.  For  the  Americans  there  is 
nothing  to  do  but  to  "go  down  the  road."  At  first  the  Italians  live 
on  bread  and  be^r,  never  wash,  wear  the  same  filthy  clothes  night 
and  day,  and  are  despised.  After  two  or  three  years  they  want  to 
live  better,  wear  decent  clothes,  and  be  respected.  They  ask  for 
more  wages,  the  bosses  bring  in  another  train  load  from  the  steer- 
age, and  the  partly  Americanized  Italians  follow  the  American 
miners  "down  the  road." 

"The  best  we  get  in  the  mill  now  is  greenhorns,"  said  the  super- 
intendent of  a  tube  mill.  "When  they  first  come,  they  put  their  heart 
into  it  and  give  a  full  day's  work.  But  after  a  while  they  begin  to 
shirk  and  do  as  little  as  they  dare."  It  is  during  this  early  innocence 
that  the  immigrant  accepts  conditions  that  he  ought  to  spurn.  The 
same  mill  had  to  break  up  the  practice  of  selling  jobs  by  foremen. 
On  the  Great  Northern  Railroad  the  bosses  mulcted  each  Greek 
laborer  a  dollar  a  month  for  interpreter.  The  "bird  of  passage" 
who  comes  here  to  get  ahead  rather  than  to  live,  not  only  accepts  his 
seven-day  week  and  the  twelve-hour  day,  but  often  demands  them. 
Big  earnings  blind  him  to  the  cost  of  overwork.  It  is  the  American 
or  the  half-Americanized  foreigner  who  rebels  against  the  eighty- 
four-hour  schedule. 


486  CURRENT  ECONOMIC  PROBLEMS 

When  capital  plays  lord  of  the  manor,  the  Old  World  furnishes 
the  serfs.  In  some  coal  districts  of  West  Virginia  the  land,  streets, 
paths,  roads,  and  miners'  cabins,  the  store,  the  school,  and  the 
church  are  all  owned- by  the  coal  company.  The  company  pays- the 
teacher,  and  no  priest  or  clergyman  objectionable  to  it  may  remain 
on  its  domain.  One  may  not  step  off  the  railroad's  right  of  way, 
pass  through  the  streets,  visit  mine  or  cabin,  without  permission. 
There  is  no  place  where  miners  meeting  to  discuss  their  grievances 
may  not  be  dispersed  as  trespassers.  Any  miner  who  talks  against 
his  boss  or  complains  is  promptly  dismissed  and  ejected  from  the 
35,oOo  acres  of  company  land.  Hired  sluggers,  known  as  the 
"wrecking-gang,"  beat  up  or  even  murder  the  organizer  who  tries 
to  reach  the  miners.  It  is  needless  to  say  that  the  miners  are  all 
negroes  or  foreigners. 

After  an  industry  has  been  foreignized,  the  notion  becomes  fixed 
in  the  minds  of  the  bosses  that  without  the  immigrants  the  industry 
would  come  to  a  standstill.  "If  it  wasn't  for  the  Slavs,"  say  the 
superintendents  of  Mesaba  mines,  "we  couldn't  get  out  this  ore  at 
all,  and  Pittsburgh  would  be  smokeless.  You  can't  get  an  American 
to  work  here  unless  he  runs  a  locomotive  or  a  steam  shovel.  We've 
tried  it ;  brought  'em  in  carloads  at  a  time,  and  they  left." 

"Wouldn't  they  stay  for  $3.00  a  day  ?"  I  suggested. 

"No,  it's  not  a  matter  of  pay.  Somehow  Americans  nowadays 
aren't  any  good  for  hard  or  dirty  work." 

Hard  work !  And  I  think  of  Americans  I  have  seen  in  their  last 
asylum  of  the  native  born,  the  far  West,  slaving  with  ax  and  hook, 
hewing  logs  for  a  cabin,  ripping  out  the  boulders  for  a  road,  digging 
irrigation  ditches,  drilling  the  granite,  or  timbering  the  drift — 
Americans  shying  at  open-pit,  steam-shovel  mining! 

The  secret  is  that  with  the  ins  weep  of  the  unintelligible  bunk- 
house  foreigner  there  grows  up  a  driving  and  cursing  of  labor  that 
*  no  self-respecting  American  will  endure.  Nor  can  he  bear  to  be 
despised  as  the  foreigner  is.  It  is  not  the  work  or  the  pay  that  he 
minds,  but  the  stigma.  That  is  why,  when  a  labor  force  has  come 
to  be  mostly  Slav,  it  will  be  all  Slav.  But  if  the  supply  of  raw  Slavs 
were  cut  off,  the  standards  and  status  of  the  laborers  would  rise, 
and  the  Americans  would  come  into  the  industry. 

Does  the  man  the  immigrant  displaces  rise  or  sink?  The  theory 
that  the  immigrant  pushes  him  up  is  not  without  some  color  of 
truth.  In  Cleveland  the  American  and  German  displaced  iron-mill 
workers  seem  to  have  been  absorbed  in  other  growing  industries. 


POPULATION  AND  IMMIGRATION  487 

They  are  engineers  and  firemen,  bricklayers,  carpenters,  structural 
iron  workers,  steamfitters,  plumbers,  and  printers.  Leaving  pick 
and  wheelbarrow  to  Italian  and  Slav,  the  Irish  are  now  meter-read- 
ers, wire-stringers,  conductors,  motor-men,  porters,  caretakers,  night- 
watchmen,  and  elevator  men.  I  find  no  sign  that  either  the  displaced 
workmen  or  his  sons  have  suflfered  from  the  advent  of  Pole  and 
Mag}^ar.  On  the  other  hand,  in  Pittsburgh  and  vicinity,  the  new 
immigration  has  been  like  a  flood  sweeping  away  the  jobs,  homes, 
and  standards  of  great  numbers,  and  obliging  them  to  save  them- 
selves by  accepting  poorer  employment  or  fleeing  to  the  West.  The 
cause  of  the  difference  is  that  Pittsburgh  held  to  the  basic  industries, 
while  in  Cleveland  numerous  high-grade  manufacturers  started  up 
which  absorbed  the  displaced  workmen  into  the  upper  part  of  the 
laboring  force. 

Unless  there  is  some  collateral  growth  of  skill-demanding  indus- 
tries, the  new  immigrants  bring  disaster  to  many  of  the  workingmen 
they  undercut.  The  expansion  of  the  industry  will  create  some 
new  jobs,  but  not  enough  to  reabsorb  the  Americans  displaced.  Thus 
in  the  iron  mines  of  Minnesota,  out  of  the  seventy-five  men  kept 
busy  by  oi^e  steam  shovel,  only  thirteen  get  $2.50  a  day  or  more,  and 
$2.50  is  the  least  that  will  maintain  a  family  on  the  American  stand- 
ard. It  is  plain  that  the  advent  of  sixty-two  cheap  immigrants  might 
displace  sixty-two  Americans,  while  it  would  create  only  thirteen 
decent- wage  jobs  for  them.  Scarcely  any  industry  can  grow  fast 
enough  to  reabsorb  into  skilled  or  semi-skilled  positions  the  displaced 
workmen. 

Employers  observe  a  tendency  for  employment  to  become  more 
fluctuating  and  seasonal  because  of  access  to  an  elastic  supply  of 
aliens,  without  family  or  local  attachments,  ready  to  go  anywhere 
or  to  do  anything.  In  certain  centers  immigrant  laborers  form,  as 
it  were,  visible  living  pools  from  which  the  employer  can  dip  as  he 
needs.  Why  should  he  smooth  out  his  work  evenly  throughout  the 
year  in  order  to  keep  a  labor  force  composed  of  family  men  when 
he  can  always  take  "ginnies"  without  trouble  and  drop  them  with- 
out compunction?  Railroad  shops  are  coming  to  hire  and  to  "fire" 
men  as  they  need  them  instead  of  relying  upon  the  experienced 
regular  employees.  In  a  concern  that  employs  30,000  men  the  rate 
of  change  is  100  per  cent  a  year  and  is  increasing.  Labor  leaders 
notice  that  employment  is  becoming  more  fluctuating,  that  there  are 
fewer  steady  jobs,  and  the  proportion  of  men  who  are  justified  in 
founding  a  home  diminishes. 


488  ^        CURRENT  ECONOMIC  PROBLEMS 

239.     Immigration  and  Unionism^^' 

BV  W.  JRTT  LAUCK 

A  significant  result  of  the  extensive  employment  of  southern 
and  eastern  Europeans  in  mining  and  manufacturing  is  seen  in 
the  general  weakening  and,  in  some  instances,  in  the  entire  demor- 
alization of  the  labor  organizations  which  were  in  existence  before 
the  arrival  of  the  races  of  recent  immigration.  This  condition  of 
affairs  has  been  due  to  the  inability  of  the  labor-unions  to  absorb 
within  a  short  time  the  constantly  increasing  number  of  new  ar- 
rivals. The  southern  and  eastern  Europeans,  as  already  pointed  out, 
because  of  their  tractability,  their  lack  of  industrial  experience  and 
training,  and  their  necessitous  condition  on  applying  for  work,  have 
been  willing  to  accept,  without  protest,  existing  conditions  of  em- 
ployment. Their  desire  to  earn  as  large  an  amount  as  possible 
within  a  limited  time  has  also  rendered  the  recent  immigrant  averse 
to  entering  into  strikes  which  involved  a  loss  of  time  and  a  decrease 
in  earnings.  The  same  kind  of  thriftiness  has  led  the  immigrant 
wage-earner  to  refuse  to  maintain  his  membership  in  the  labor- 
unions  for  an  extended  period  and  has  consequently  prevented  the 
complete  unionization  of  certain  occupations  in  some  cases,  and,  in 
others,  the  accumulation  of  a  defense  fund  by  the  labor  organiz- 
ations. The  high  degree  of  illiteracy  among  recent  immigrants 
and  the  inability  of  the  greater  number  to  speak  English  have 
also  caused  their  organization  into  unions  by  the  native  Americans 
and  older  immigrants  to  b^  a  matter  of  large  expense.  The  diffi- 
culty of  the  situation,  from  the  standpoint  of  the  labor  organizations, 
is  further  increased  by  the  conscious  policy  of  the  employers  of 
mixing  races  in  certain  departments  or  divisions  of  industries  and 
thus  decreasing  the  opportunities  for  any  concerted  action  because 
of  a  diversity  of  language  in  the  operating  forces.  In  mining  oper- 
ations, by  way  of  illustration,  in  many  sections,  no  one  race  is 
permitted  to  secure  a  controlling  number  in  the  operating  forces 
of  a  single  mine  or  mining  occupation  because  of  the  fear  that  a 
common  language  would  enable  them  to  be  readily  organized  for 
the  purpose  of  seeking  redress  for  real  or  fancied  grievances. 

•"Adapted  from  "The  Real  Significance  of  Recent  Immigration,"  in  the 
North  American  Review,  CXCV,  2008-2009.    Copyright  (1912). 


POPULATION  AND  IMMIGRATION  489 

F.     THE  FURTHER  RESTRICTION  OF  IMMIGRATION 
240.     The  Menace  of  the  Immigrant  Farmer^^ 

BY  ROBERT  D,  WARD 

To  scatter  among  our  rural  communities  large  numbers  of  aliens 
whose  standards  of  living  are  such  that  they  are  willing  to  work  for 
the  lowest  possible  wage,  is  to  expose  our  native  farming  popula- 
tion to  a  competition  which  is  distinctly  undesirable.  In  the  corn 
belt  of  the  west,  as  Professor  T.  N.  Carver  has  recently  shown,  the 
newer  immigrants,  because  of  their  lower  standards  of  living,  have 
been  able  to  put  more  money  into  land,  buildings,  and  equipment, 
than  the  native  American  farmer;  and  hence  have  an  advantage  in 
the  struggle  for  existence.  Scattering  our  ahen  population  simply 
spreads  more  widely  the  evils  which  result  from  exposing  our  own 
people  to  competition  with  the  lower  class  of  foreigners.  Even 
though  Italians  displace  negroes  in  the  agricultural  districts  of  the 
South,  the  effect  will  undoubtedly  be  to  cause  a  migration  of  the 
negroes  to  the  cities,  a  result  which  those  familiar  with  the  condi- 
tions of  the  negroes  now  congested  in  cities  can  not  fail  to  view 
with  the  greatest  alarm.  Lastly,  the  more  widely  we  scatter  the 
newer  immigrants,  the  more  widespread  will  be  the  effect  of  the 
competition  with  the  lower  grades  of  aliens  in  causing  a  decrease 
in  numbers  among  the  older  portion  of  our  population.  American 
fathers  and  mothers  naturally  shrink  from  exposing  their  sons  and 
daughters  to  competition  with  those  who  are  contented  with  lower 
wages  and  lower  standards  of  living;  and  therefore  the  sons  and 
daughters  are  never  born. 

Even  if  the  slum  population  should  be  distributed  throughout 
the  rural  sections  of  the  country,  congestion  in  the  slums  could  not 
be  relieved,  as  long  as  the  tide  of  new  immigration  flows  on  un- 
checked. Were  it  not  for  the  continued  influx  of  new  immigrants, 
the  problem  of  the  slum  burden  would  not  exist.  It  is  quite  obvious 
that  the  more  we  try  to  reduce  the  pressure  of  competition  among 
the  alien  immigrants  in  our  great  cities,  the  more  we  shall  encour- 
age other  immigrants,  as  ignorant  and  as  poor,  to  come  over  and 
take  the  places  vacated.  Distribution  and  a  reduction  in  the  num- 
ber of  our  immigrants  are  both  needed. 

'^Adapted  from  an  article  in  the  Popular  Science  Monthly,  LXVI,  I73-I7S 
Copyright  (1904). 


490  CURRENT  ECONOMIC  PROBLEMS 

241.     A  Protest  against  Immigration^^ 

Resolved,  That  the  unprecedented  movement  of  the  very  poor 
to  America  from  Europe  in  the  last  three  years  has  resulted  in 
wholly  changing  the  previous  social,  political,  and  economic  aspects 
of  the  immigration  question.  The  enormous  accessions  to  the  ranks 
of  our  competing  wage-workers,  being  to  a  great  extent  unem- 
ployed, or  only  partly  employed  at  uncertain  wages,  are  lowering 
the  standard  of  living  among  the  masses  of  the  working  people  of 
this  country,  without  giving  promise  to  uplift  the  great  body  of 
immigrants  themselves.  The  overstocking  of  the  labor  market  has 
become  a  menace  to  many  trade-unions,  especially  those  of  the  less 
skilled  workers.  Little  or  no  benefit  can  possible  accrue  to  an  in- 
creasing proportion  of  the  great  numbers  yet  coming;  they  are 
unfitted  to  battle  intelligently  for  their  rights  in  this  republic,  to 
whose  present  burdens  they  but  add  others  still  greater.  The  fate 
of  the  majority  of  the  foreign  wage-workers  now  here  has  served 
to  demonstrate  on  the  largest  possible  scale  that  immigration  is  no 
solution  of  the  world-wide  problem  of  poverty. 

Resolved,  That  we  warn  the  poor  of  the  earth  against  coming 
to  America  with  false  hopes ;  it  is  our  duty  to  inform  them  that  the 
economic  situation  in  this  country  is  changing  with  the  same  rapid- 
ity as  the  methods  of  industry  and  commerce. 


242.     Consular  Inspection  as  a  Method  of  Restriction^^ 

BY  BROUGHTON  BRANDENBURG 

Immigration  must  be  either  controlled  and  directed  or  it  must 
be  abolished,  and  the  last-named  alternative  is  eliminated  by  com- 
mon sense  and  considerations  of  a  humane  nature.  We  need  the 
immigrants.  Our  nation  owes  its  strength  today  to  those  who  have 
crossed  the  ocean  in  other  years.  Our  great  industries  need  their 
brawn,  our  undeveloped  regions  need  their  toil,  and  we  can  easily 
accept  150,000,000  more  human  beings  as  raw  material;  but  they 
must  come  as  raw  material, — good  raw  material.  That  given,  our 
civic  atmosphere,  our  conditions,  our  national  spirit  must  do  the 
rest,  and  patriots  must  look  to  the  children  of  the  immigrants  for 
the  results  rather  than  to  the  immigrants  themselves. 

"These  resolutions  were  adopted  by  the  Executive  Board  of  the  United 
Garment  Workers  in  America  after  an  unsuccessful  strike  in  New  York  in 
1905.    The  members  of  this  trade  are  very  largely  Russian  Jews. 

•'Adapted  from  Imported  Americans,  297-301.  Copyright  by  Frederick  A. 
Stokes  Co.  (1904). 


POPULATION  AND  IMMIGRATION  491 

Diseased,  deformed,  or  physically  insufficient  persons  are  not 
and  nev^er  can  be  good  raw  material,  and  should  not  be  allowed  to 
leave  their  homes,  nor  should  any  members  of  their  families  on 
whom  they  are,  or  are  likely  to  be,  dependent.  Convicts,  prostitutes, 
persons  engaged  in  questionable  pursuits,  anarchists,  radical  social- 
ists, and  political  agitators  should  be  excluded. 

The  true  conditions  of  all  such  persons  is  readily  ascertainable 
from  the  civic,  police,  and  military  records  in  the  communes  of  their 
residence,  to  which  can  be  added  the  supplemental  evidence  of  their 
neighbors  and  the  local  officials  of  the  communes.  In  the  com- 
munes of  their  nativity  the  truth  is  known  and  cannot  be  hidden. 
At  the  ports  of  embarkation  combined  influences  can  deceive  the 
best  officials.  At  the  ports  of  arrival  the  hand  of  the  inspector  is 
still  weaker. 

The  conclusion  is  plain;  seek  the  grounds  on  which  to  deny 
passage  to  emigrants  who  ^yish  to  come  to  the  United  States  in  the 
villages  from  which  they  emanate. 

What  seems  to  me  to  be  the  best  plan  to  do  this,  to  keep  the 
expense  below  that  which  it  is  at  present,  and  to  avoid  the  oppor- 
tunities which  are  sure  to  be  presented  for  wholesale  corruption  of 
American  officials  by  the  transportation  interests  and  by  the  emi- 
grants themselves,  is  this :  Select  emigrants  before  itinerant  boards 
of  two,  three,  or  more  native-bom  Americans  who  speak  fluently 
and  understand  thoroughly  the  language  and  dialects  of  the  people 
who  come  before  them, — these  boards  to  be  on  a  civil-service  basis. 

The  long  diplomatic  delays  and  ensuing  red  tape  of  incorporat- 
ing the  privileges  of  these  boards  in  treaties  with  the  several  Euro- 
pean governments  can  be  avoided  by  temporary  operation  under 
the  present  consular  system  of  the  United  States,  and  little  objec- 
tion would  be  met  with  from  any  of  the  governments  from  whose 
domains  the  immigrants  come. 

The  sittings  of  the  boards  should  be  announced  by  advertise- 
ments a  sufficient  length  of  time  in  advance  to  allow  all  persons  con- 
templating emigration  to  prepare  to  appear  for  examination.  Ex- 
aminers should  be  prepared  to  furnish  information  as  to  destinations 
and  opportunities,  and  could,  with  care,  prevent  an  increase  of  the 
congestion  in  the  cities  of  the  East.  In  extremity,  regulations  could 
be  made  which  would  allow  them  to  deny  clearance  and  passage  to 
persons  desirous  of  going  to  districts  already  over-populated  with 
aliens. 

It  is  easy  to  see  how  these  visiting  boards  could  promote  emigra- 
tion among  the  classes  which  are  most  desirable  in  northern  and 
central  Europe,  and  are  now  so  chary  of  coming.     Families  which 


492  CURRENT  ECONOMIC  PROBLEMS 

have  something  to  lose  by  being  turned  back  from  the  United  States 
are  loath  to  dispose  of  their  property  and  make  the  venture.  If 
they  knew  they  were  certain  of  admission  before  they  left  their 
homes,  a  year's  time  would  see  the  level  of  the  grade  of  emigrants 
greatly  elevated. 

Deportation  is  the  severest  punishment  which  can  fall  on  an 
alien  in  comparison  with  anything  less  than  a  several  years'  impris- 
onment, and  all  admissions  to  the  country  should  be  made  proba- 
tionary ;  the  commission  of  any  crime  or  crimes,  and  conviction 
therefor,  to  be  followed  by  punishment  and  then  by  deportation. 
Many  of  the  minor  crimes  committed  by  aliens  are  done  with  the 
intention  of  getting  two  or  three  years  in  prison  in  which  to  learn 
to  read  and  write  English  and  acquire  a  trade. 

243.     An  Immigration  Program^* 

As  a  result  of  the  investigation  the  Commission  is  of  the  opin- 
ion that  in  legislation  emphasis  should  be  laid  on  the  following 
principles : 

1.  While  the  American  people  welcome  the  oppressed  of  other 
lands,  care  should  be  taken  that  immigration  be  such  in  quantity 
and  quality  as  not  to  make  too  difficult  the  process  of  assimilation. 

2.  Further  general  legislation  concerning  the  admission  of  im- 
migrants should  be  based  primarily  upon  economic  or  business  con- 
siderations touching  the  prosperity  and  economic  well-being  of  our 
people. 

3.  The  measure  of  the  healthy  development  of  a  country  is  not 
the  extent  of  its  investment  of  capital,  its  output  of  products,  or 
its  imports  and  exports,  unless  there  is  a  corresponding  economic 
opportunity  afforded  to  the  citizen  dependent  upon  employment 
for  his  material,  mental,  and  moral  development. 

4.  A  slow  expansion  of  industry  which  permits  the  adaptation 
and  assimilation  of  the  incoming  labor  supply  is  preferable  to  a 
very  rapid  industrial  expansion  which  results  in  the  immigration 
of  laborers  of  low  standards  and  efficiency,  who  imperil  the  Amer- 
ican standard  of  wages  and  conditions  of  employment. 

The  investigations  of  the  Commission  show  an  oversupply  of 
unskilled  labor  in  the  basic  industries  of  the  country  as  a  whole, 
and  therefore  demand  legislation  which  will  at  the  present  time  re- 

"Adapted  from  A  Brief  Statement  of.  tjie  Conclusions  and  Recommenda- 
tions of  the  Immigration  (Commission,  37-40.  (1910). 


POPULATION  AND  IMMIGRATION  493 

strict  the  further  admission  of  such  unskilled  labor.    It  is  desirable 
in  making  these  restrictions  that: 

a.  A  sufficient  number  be  debarred  to  produce  a  marked  effect 
upon  the  present  supply  of  unskille'd  labor. 

b.  The  aliens  excluded  should  be  those  who  come  to  this  coun- 
try with  no  intention  to  become  American  citizens,  but  merely  to 
save  and  return  to  their  own  country. 

c.  The  aliens  excluded  should  be  those  who  would  least  readily 
be  assimilated. 

The  following  methods  of  restricting  immigration  have  been 
suggested : 

a.  The  exclusion  of  those  unable  to  read  or  write  in  some  lan- 
guage. 

b.  The  limitation  of  the  number  of  each  race  arriving  each  year 
to  a  certain  percentage  of  the  average  of  that  race  arriving  during 
a  given  period  of  years. 

c.  The  exclusion  of  unskilled  laborers  imaccompanied  by  wives 
or  families. 

d.  The  limitation  of  the  number  of  immigrants  arriving  an- 
nually at  any  port. 

e.  The  material  increase  in  the  amount  of  money  required  to 
be  in  the  possession  of  the  immigrant  at  the  port  of  arrival. 

f.  The  material  increase  in  the  head  tax. 

g.  The  levy  of  the  heaid  tax  so  as  to  make  a  marked  discrim- 
ination in  favor  of  men  with  families. 

A  majority  of  the  Commission  favor  the  reading  and  writing 
test  as  the  most  feasible  single  method  of  restricting  undesirable 
immigration. 


244.     The  Pro  and  Con  of  the  Literacy  Test 

a)     The  Necessity  for  the  Educational  Test^^ 

BY  p.   F.   HALIv 

If  we  are  to  apply  some  further  method  of  selection  to  immi- 
grants what  shall  it  be?  It  must  be  a  definite  test.  For  one  trouble 
with  the  present  law  is  that  it  is  so  vague  and  elastic  that  it  can  be 
interpreted  to  suit  the  temper  of  any  of  the  higher  officials  who 
may  happen  to  be  charged  with  its  execution.  While  there  are 
many  exceptions,  those  persons  who  can  not  read  in  their  own  lan- 
guage are,  in  general,  those  who  are  also  ignorant  of  a  trade,  who 

•"Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XXIV,  183.    Copyright  (1904). 


494  CURRENT  ECONOMIC  PROBLEMS 

bring  little  money  with  them,  who  settle  in  the  city  slums,  who 
have  a  low  standard  of  living  and  little  ambition  to  seek  a  better, 
and  who  do  not  assimilate  rapidly  or  appreciate  our  institutions.  It 
is  not  claimed  that  an  illiteracy'  test  is  a  test  of  moral  character, 
but  it  would  undoubtedly  exclude  a  good  many  persons  who  now 
fill  our  prisons  and  almshouses,  and  would  lessen  the  burden  on 
our  schools  and  machinery  of.  justice.  In  a  country  having  uni- 
versal suffrage,  it  is  also  an  indispensable  requirement  for  citizen- 
ship, and  citizenship  in  its  broadest  sense  means  much  more  than 
the  right  to  the  ballot.  The  illiteracy  test  has  passed  the  Senate 
three  times  and  the  House  four  times  in  the  last  eight  years.  The 
test  has  already  been  adopted  by  the  Commonwealth  of  Australia 
and  by  British  Columbia,  and  would  certainly  have  been  adopted 
here  long  since  but  for  the  opposition  of  the  transportation  com- 
panies. 

b)     Pauperism  and  Illiteracy^' 

*  BY  KATE  H.  CLAGHORN 

The  general  conclusion  to  be  drawn  with  regard  to  the  newer 
elements  in  immigration  seem  to  be,  first,  that  among  them  the  un- 
skilled worker  gets  along  better  than  the  skilled,  and  the  illiterate 
than  the  literate.  This  is  not  to  say  that  skill  and  education  in  them- 
selves are  a  handicap  in  the  industrial  contest,  or  that  all  racial 
groups  with  a  large  proportion  of  illiterate,  unskilled  labor  get  along 
better  than  those  having  a  high  degree  of  literacy  and  a  larger  pro- 
portion of  skill. 

Industrial  success  in  this  country  depends  upon  adjustment  to 
conditions  here.  Some  groups  seem  to  find  suitable  openings  for 
skill  and  education.  But  Qfi  the  whole  there  is  more  chance  for  the 
newcomer  into  any  social  aggregation  if  he  is  willing  to  begin  at 
the  bottom,  and  in  this  country,  in  particular,  there  is  less  demand 
for  skilled  labor  from  outside,  owing  to  the  fact  that  the  present 
inhabitants  are  willing  to  follow  these  lines  of  work  themselves,  but 
are  unwilling  to  occupy  themselves  in  unskilled  labor.  On  the  other 
hand  the  skill,  and  especially  the  education,  of  the  newer  European 
immigrant  has  been  directed  along  lines  that  do  not  suit  American 
conditions.  In  the  evolutionary  phrasing,  undifferentiated  social 
elements  can  more  easily  adapt  themselves,  by  specializing,  to  fit  a 
new  environment,  than  can  the  elements  which  have  been  already 
differentiated  to  fit  a  former  environment. 

** Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XXIV,  197-198.    Copyright  (1904). 


POPULATION  AND  IMMIGRATION  495 

Any  restriction  of  immigration,  then,  that  is  based  on  an  edu- 
cational qualification,  would  be  meaningless  with  respect  to  the 
growth  of  pauperism.  Such  a  qualification  would,  among  the  newer 
immigrants  at  least,  let  in  the  class  which  though  small  is  the  most 
difficult  to  provide  Tor,  and  would  keep  out  the  class  that  can  best 
provide  for  itself. 

c)     From  the  Men  at  the  Gate^'' 

BY  LOUIS  S.  AMONSON 

We've  dug  your  million  ditches,  We've  given  honest  labor, 

We've  built  your  eqdless  roads,  And  liked  our  humble  lot ; 

We've  fetched  your  wood  and  water,      Our  children  learn  the  letters 

And  bent  beneath  the  loads.  Their  fathers  haven't  got. 

We've  done  the  lowly  labor  We've  fled  from  persecution 

Despised  by  your  own  breed;  And  served  you  in  your  need, 

And  now  you  won't  admit  us  But  now  you  would  debar  us 

Because  we  can  not  read.  Because  we  can  not  read. 

Most  crooks  are  educated,  Good  friends,  if  we  are  brothers, 

And  to  the  manner  born;  Why  do  you  raise  this  test? 

Their  white  hands  show  no  callous,        Will  talk,  then,  till  your  acres 

They  look  on  us  with  scorn.  And  feed  your  people  best? 

Mere  learning  is  not  virtue,  Your  children,  trained  as  idlers. 

The  word  is  not  the  deed  Some  workers  you  must  need 

Disdain,  then,  not  your  toilers  Don't  bar  our  only  refuge 

Because  they  can  not  read.  Because  we  can  not  read. 

Your  farms  are  half  deserted, 

Up  goes  the  price  of  bread; 
Your  boasted  education 

Turns  men  to  clerks  instead. 
We  bring  our  picks  and  shovels 

To  meet  your  greatest  need ; 
Don't  shut  the  gate  upon  us 

Because  we  can  not  read. 

d)     Our  Immigration  Policy^' 

In  two  particulars  of  vital  consequence  this  bill  embodies  a 
radical  departure  from  the  traditional  and  long-established  policy 
of  this  country,  a  policy  in  which  our  people  have  conceived  the  very 
character  of  their  government  to  be  expressed,  the  very  mission 
and  spirit  of  the  nation  in  respect  of  its  relations  to  the  peoples 
of  the  world  outside  their  borders.  It  seeks  to  all  but  close  entirely 
the  gates  of  asylum  which  have  always  been  open  to  those  who 

*^From  The  Square  Deal,  XII,  165-166  (1913). 

'"Adapted  from  the  Message  of  the  President  of  the  United  States  Veto- 
ing H.R.  6060,  63d  Cong.,  3d  sess.,  Document  1527,  3-4  (1915).  This  bill  pro- 
vided for  the  so-called  "literacy  test"  for  admission  of  aliens  into  this 
country. 


496  CURRENT  ECONOMIC  PROBLEMS 

could  find  nowhere  else  the  right  and  opportunity  of  constitutional 
agitation  for  what  they  conceived  to  be  the  natural  and  inalienable 
rights  of  men;  and  to  exclude  those  to  whom  the  opportunities  of 
elementary  education  have  been  denied,  without  regard  to  their 
character,  their  purposes,  or  their  natural  capacity. 

Restrictions  like  these  adopted  earlier  in  our  history  as  a  nation, 
would  very  materially  have  altered  the  course  and  cooled  the  human 
ardor  of  our  politics.  The  right  of  political  asylum  has  brought 
to  this  country  many  a  man  of  noble  character  and  elevated  purpose 
who  was  marked  as  an  outlaw  in  his  own  less  fortunate  land,  and 
who  has  yet  become  an  ornament  to  our  citizenship  and  to  our  public 
councils.  The  children  and  the  compatriots  of  these  illustrious 
Americans  must  stand  amazed  to  see  the  representatives  of  their 
nation  now  resolved,  in  the  fulness  of  our  national  strength  and  at 
the  maturity  of  our  great  institutions,  to  risk  turning  men  back  from 
our  shores  without  test  of  quality  or  purpose.  It  is  difficult  for  me 
to  believe  that  the  full  effect  of  this  feature  of  the  bill  was  realized 
when  it  was  framed  and  adopted,  and  it  is  impossible  for  me  to 
assent  to  it  in  the  form  in  which  it  is  here  cast. 

The  literacy  test  and  the  tests  and  restrictions  which  accompany 
it  constitutes  an  even  more  radical  change  in  the  policy  of  the  nation. 
Hitherto  we  have  generously  kept  our  doors  open  to  all  who  were 
not  unfitted  by  disease  or  incapacity  for  self-support  or  such  per- 
sonal records  or  antecedents  as  were  likely  to  make  them  a  menace 
to  our  peace  and  order  or  to  the  wholesome  and  essential  relation- 
ships of  life.  In  this  bill  it  is  proposed  to  turn  away  from  tests  of 
character  and  of  quality  and  impose  tests  which  exclude  and  re- 
strict ;  for  the  new  tests  here  embodied  are  not  tests  of  quality  or  of 
character  of  personal  fitness,  but  tests  of  opportunity.  Those  who 
come  seeking  opportunity  are  not  to  be  admitted  unless  they  have 
already  had  one  of  the  chief  opportunities  they  seek,  the  opportunity 
of  education. 

WOODROW   WlIvSON 

245.     Wanted — An  Immigration  Policy^^ 

A  friend  of  ours  languidly  expatiates  upon  the  folly  of  answer- 
ing letters.  "Lay  them  away  in  the  drawer,"  he  advises,  "and  after 
a  month  or  perhaps  six  months  they  will  have  answered  themselves." 

In  much  the  same  spirit  our  Congressmen  are  advised  that  no 
immigration  policy  is  necessary,  that  if  they  will  but  leave  the  pend- 

*'Adapted  from  an  editorial  in  the  New  Republic,  December  26,  1914, 
lO-ii.  Copyright. 


POPULATION  AND  IMMIGRATION  497 

ing  Immigration  bill  alone,  they  will. not  have  abjured  labor  in  vain. 
The  immigration  question,  left  to  itself,  will  answer  itself.  The 
alien  will  become  an  American,  the  capables  absorbed  in  our  national 
organism,  the  incapables  rejected.  Moreover,  the  countries  from 
which  our  immigrants  come  will  gradually  lose  their  surplus  of 
men,  and  immigration  will  cease  without  legislation  as  our  own 
westward  migration  to  an  ever-receding  frontier  ceased  of  itself 
when  our  free  lands  became  exhausted. 

This  theory  of  the  automatic  drying  uf)  of  the  sources  of  immi- 
gration has  been  emphasized  more  strongly  than  ever  since  the  out- 
break of  the  war.  If  the  war  lasts  a  year  or  more  millions  will  be 
killed  and  other  millions  will  be  permanently  incapacitated. 

But  even  though  population  does  decline,  it  does  not  follow  that 
the  immigrating  impulse  will  be  lessened.  The  rapid  decrease  of  the 
Irish  population  during  the  half-century  after  the  famine  did  not 
retard  but  actually  accelerated  the  immigration.  It  is  not  from 
countries  with  lessened  population,  but  from  countries  with  les- 
sened economic  opportunities  that  population  proceeds.  .  And  it  is 
exactly  this  lessening  of  economic  opportunities  that  we  have  to  fear 
as  a  result  of  the  war.  Capital  will  be  dissipated,  credit  shattered, 
and  whole  trades,  the  learning  of  which  has  cost  years  of  arduous 
labor,  will  be  for  the  time  discounted.  The  system  will  accommo- 
date itself  only  slowly  to  the  sudden  withdrawal,  and  later  the  sud- 
den replacement  of  millions  of  wage-earners. 

If  then,  as  is  to  be  feared,  new  armies  of  ragged  and  unem- 
ployed are  to  be  enrolled  as  soon  as  the  armies  in  uniform  are  dis- 
banded, if  wages  fall  and  life  becomes  insecure,  the  outward  pres- 
sure upon  the  huge  wage-earning  populations  of  Europe  will  be 
overwhelming,  and  those  who  have  the  means  will  seek  to  emigrate. 
There  will  be  restless  millions  of  former  wage-earners  in  whom  the 
fierce  emotions  of  war  have  made  an  end  to  all  those  industrial  am- 
bitions and  acquiescences  so  habitually  ignored,  and  yet  vitally  es- 
sential, to  the  mere  existence  of  society.  Others,  having  lost  their 
farms  or  their  little  shops  or  houses,  or  their  wives  and  families,  and 
still  others  who  have  had  their  country  and  their  patriotism  swept 
away  from  under  the  feet  will  be  discontented  and  mobile.  The 
world  will  be  full  of  foot-loose  adventurers,  good  and  bad,  filled  with 
romantic  illusions  or  else  utterly  disenchanted,  and  to  these  broken 
lives  America  will  appeal  with  a  freshness  of  attraction  such  as  she 
has  not  possessed  since  the  days  of  '48,  when  the  defeated  revolu- 
tionists of  Germany  turned  westward  to  a  land  which  to  them  em- 
bodied the  liberal  principles  for  which  they  had  been  struggling. 


498  CURRENT  ECONOMIC  PROBLEMS 

And  recalling,  as  we  must,4he  high  reverence  for  the  America 
of  that  day,  and  this  ideal  picture  of  her  which  may  still  be  found 
in  the  hearts  of  boys  risking  their  lives  in  the  cold  trenches — re- 
calling this,  does  it  seem  sinister  to  close  the  doors  upon  this  misery, 
to  make  the  wretchedness  of  the  European  our  excuse  for  debarring 
him?  It  may  be  sinister.  Yet  what  else  has  been  or  can  be  the 
justification  of  that  policy  of  self-defense  which  we  seek  to  express 
in  some  adequate  restriction  or  regulation  of  a  swelling  immigra- 
tion? Wretchedness  is  infectious,  and  no  contagion  is  more  deadly 
than  that  of  poverty.  It  is  the  poverty  and  the  resourcefulness  of 
the  immigrant,  which,  handing  him  over  to  the  exploiter,  renders 
him  so  dangerous  to  himself  and  to  others.  To  justify  a  policy  of 
restriction  we  need  only  oppose  the  wisdom  of  facing  problems  con- 
cretely and  courageously  to  the  folly  of  leaving  things  as  they  are. 
If  we  are  to  protect  ourselves  and  the  immigrant  from  exploitation, 
impoverishment,  and  a  fierceness  and  lawlessness  of  economic  strug- 
gle, which  too  often  brands  the  victor  with  an  indelible  brand  and 
leaves  the  victim  crushed  and  demoralized,  we  must  work  out  a 
statesmanlike  policy  of  immigration  and  end  our  listless  method  of 
sitting  grandiloquently  at  the  gate  and  letting  all  enter,  irrespective 
of  their  needs  or  ours,  provided  only  they  have  thirty  dollars  and  un- 
granulated  eyelids. 

All  of  which  does  not  mean  that  we  favor  the  bill  at  present  be- 
fore Congress  or  even  the  principle  of  the  literacy  test.  The  value 
or  valuelessness  of  such  a  test  is  a  matter  of  proof,  and  the  burden 
of  such  proof  rests  squarely  upon  its  advocates.  Is  this  test  really  a 
test?  Is  it  selective  of  the  best?  Or  is  it  merely  repressive,  a  cut- 
ting down  of  the  number  of  immigrants  without  regard  to  merit  or 
capacity,  as  a  law  excluding  red-headed  immigrants  would  cut  down 
the  number  ?  Is  illiteracy  a  real  disqualification  and  the  fault  of  the 
immigrant,  or  is  it  a  part  of  the  very  conditions  which  he  has  the 
courage  to  flee? 

We  ask  these  questions  without  too  definitely  suggesting  our 
answer.  We  do  not,  however,  conceal  our  preference  for  some  form 
of  immigration  policy  larger,  more  constructive,  more  educative  and 
human,  and  less  rigidly  restrictive  than  that  which  is  now  proposed. 
Such  a  policy  as  we  have  in  mind  would  enable  highly  trained  and 
highly  paid  government  experts,  resident  in  Europe,  to  meet  the 
aspirant  for  immigration  months  or  even  years  before  he  started  on 
his  travels,  and  it  would  keep  the  government  in  touch  with  him  dur- 
ing a  period  not  less  than  five  years  after  his  immigration.  In  other 
words,  the  plan  which  we  should  like  to  see  elaborated  is  a  federal 


POPULATION  AND  IMMIGRATION  499 

system  of  supervision  of  the  alien,  of  advice,  of  protection,  of  edu- 
cation, based  upon  his  special  needs  and  his  peculiar  legal  status,  a 
system  for  his  benefit,  and  incidentally  for  the  benefit  of  the  rest  of 
us,  a  system  supported  by  special  taxes  paid  by  aliens,  and  also,  if 
desirable,  by  contributions  out  of  the  general  treasury.  Such  a  sys- 
tem could  be  rendered  workable  by  lengthening  to  five  years  the 
period  during  which  the  government  has  the  right  to  deport,  though 
in  our  opinion  in  each  case  the  right  should  be  subject  to  an  appeal 
by  the  alien  to  the  courts.  Given  this  right,  however,  the  government 
might  exercise  over  the  immigrant  the  same  sort  of  benevolent 
guardianship  that  the  state  now  exercises  over  the  legal  infant. 
Not  only  could  it  provide  special  facilities  for  his  education,  but  it 
could  make  the  acquisition  of  a  certain  amount  of  knowledge  a 
necessary  condition  of  his  continued  stay  in  this  country.  It  might 
advise  the  alien  in  every  stage  of  his  career,  establish  interstate  em- 
ployment bureaus,  and  constitute  itself  a  clearing-house  for  informa- 
tion concerning  industrial  and  social  conditions  in  all  places  to  which 
the  immigrant  might  be  tempted  to  go.  It  could  do  much  to  pre- 
vent the  extortion  and  exploitation  of  the  immigrant,  and  it  could 
diminish  that  unequal  distributiori  of  aliens  which  leads  to  conges- 
tion, unemployment,  and  the  aggravation  of  many  social  evils. 


G.     IMMIGRATION  AND  OUR  FUTURE 
246.     The  Economics  of  Immigration*" 

BY  FRANK  A.  FETTER 

The  current  objections  to  immigration  are  mainly  based  on  the 
alleged  evil  effects  to  the  political,  social,  and  moral  standards  of 
the  community.  It  is  often  asserted  that  present  immigration  is 
inferior  in  racia^uality  to  that  of  the  past.  Whatever  be  the  truth 
and  error  mingled  in  these  views,  we  are  not  now  discussing  them. 
Our  view  is  wholly  impersonal  and  without  race  prejudice.  If  the 
present  immigration  were  all  of  the  Anglo-Saxon  race,  were  able 
to  speak,  read,  and  write  English,  and  had  the  same  political  senti- 
ments and  capacities  as  the  earlier  population,  the  validity  of  our 
present  conclusions  would  be  unaffected. 

When  our  policy  of  unrestricted  immigration  is  thus  opposed 
to  the  interests  of  the  mass  of  the  people,  its  continuation  in  a 
democracy  where  universal  manhood  suffrage  prevails  is  possible 

*° Adapted  from  "Population  or  Prosperity,"  in  The  American  Economic 
Review,  III,  No.  i,  Supplement,  13-16.    Copyright  (1912). 


SCO  CURRENT  ECONOMIC  PROBLEMS 

only  because  of  a  remarkable  complexity  of  ideas,  sentiments,  and 
interests,  neutralizing  each  other  and  paralyzing  action.  The  Amer- 
ican sentiment  in  favor  of  the  open  door  to  the  oppressed  of  all 
lands  is  a  part  of  our  national  heritage.  The  wish  to  share  with 
others  the  blessings  of  freedom  and  of  economic  plenty  is  the  pro- 
duct of  many  generations  of  American  experience.  The  policy  .had 
mainly  an  economic  basis ;  land  was  here  a  free  good  on  the  margin 
of  a  vast  frontier.  Most  citizens  benefited  by  a  growing  population. 
But  the  open  door  policy  is  vain  to  relieve  the  condition  of  the 
masses  of  other  lands.  Emigration  from  overcrowded  countries, 
with  the  rarest  exceptions,  leaves  no  permanent  gaps.  Natural  in- 
crease quickly  fills  the  ranks  of  an  impoverished  peasantry.  Lands 
whose  people  are  in  economic  misery  must  improve  their  own  in- 
dustrial organization,  elevate  their  standards  of  living,  and  limit 
their  numbers.  If  they  go  on  breeding  multitudes  which  find  an 
unhindered  outlet  in  continuous  migration  to  more  fortunate  lands, 
they  can  at  last  but  drag  others  down  to  their  own  unhappy  eco- 
nomic level. 

The  pride  of  immigrants  and  of  their  children,  sometimes  to  the 
second  and  third  generations,  is  &.nother  strong  force  opposing  re- 
striction. Immigrants;  having  become  citizens,  are  proud  of  the 
race  of  their  origin,  and  resent  restriction  as  a  reflection  upon 
themselves  and  their  people. 

A  strong  commercial  motive  operates  in  the  most  influential 
class  of  employers  in  favor  of  the  continuance  of  immigration. 
From  the  beginning  of  our  history,  proprietors  and  employers  have 
looked  with  friendly  eyes  upon  the  supplies  of  comparatively  cheap 
labor  coming  from  abroad.  Large  numbers  of  immigrants  or  of 
their  children  have  been  able  soon,  in  the  conditions  of  the  times,  to 
become  proprietors  and  employers.  Thus  was  hastened  the  peopling 
of  the  wilderness.  The  interest  of  these  classes  harmonized  to  a 
certain  point  with  the  public  interest;  but  likewise  it  was  in  some 
respects  in  conflict  with  the  abiding  welfare  of  the  whole  nation. 
It  encouraged  much  defective  immigration  from  Europe. 

The  immigration  from  Europe  has  furnished  an  ever  changing 
group  of  workers  moderating  the  rate  of  wages  which  employers 
otherwise  would  have  had  to  pay.  The  continual  influx  of  cheap 
labor  has  aide.d  in  imparting  values  to  all  industrial  opportunities. 
A  large  part  of  these  gains  have  been  in  the  trade,  manufactures, 
and  real  estate  of  cities  as  these  have  taken  and  retained  an  ever 
growing  share  of  the  immigrants.  Successive  waves  of  immigration, 
composed  of  diflferent  races,  have  been  ready  to  fill  the  ranks  of  the 
unskilled  workers  at  meager  wages.     This  continuous  inflow  has 


POPULA  TION  AND  IMMIGRA  TION  501 

in  many  industries  come  to  be  looked  upon  as  an  indispensable 
part  of  the  labor  supply.  Conditions  of  trade,  methods  of  manufac- 
turing, prices,  profits,  and  the  capital  value  of  the  enterprises  have 
become  adjusted  to  the  fact.  Hence  results  one  of  those  illusions 
cherished  by  the  practical  world  when  it  identifies  its  own  profits 
with  the  public  welfare.  Without  immigration,  it  is  said,  the  supply 
of  labor  would  not  be  equal  to  the  demand.  It  would  not  at  the 
present  wages.  Supply  and  demand  have  reference  to  a  certain 
price.  At  a  higher  wage  the  amount  of  labor  offered  and  the 
amount  demanded  will  come  to  an  equality.  This  would  tempor- 
arily curtail  profits,  and  other  prices  would,  after  readjustment,  be 
in  a  different  ratio  to  wages.  Such  a  prospect  is  most  displeasing 
to  the  commercial  world,  quick  to  see  disaster  in  a  disturbance  of 
profits,  slow  to  see  popular  prosperity  in  rising  wages. 

The  labor  supply  coming  from  countries  of  denser  population 
and  with  low  standards  of  living  creates,  in  some  occupations,  an 
abnormally  low  level  of  wages  and  prices.  Children  can  not  be 
bom  in  American  homes  and  raised  on  the  American  standard  of 
living  cheaply  enough  to  maintain  at  such  low  wages  a  continuous 
supply  of  laborers.  Many  industries  and  branches  of  industry  in 
America  are  thus  parasitical.  A  condition  essentially  pathological 
has  come  to  be  looked  upon  as  normal.  It  is  the  commercial  ideal 
which  imposes  itself  upon  the  minds  of  men  in  other  circles. 

What  tremendous  forces  are  cc«nbined  in  favor  of  a  policy  of 
unrestricted  immigration :  sentiment  and  business,  generosity,  self- 
ishness, laborers,  employers.  All  men  are  prone  to  view  immigra- 
tion in  its  details,  not  in  its  entirety.  They  see  this  or  that  indi- 
vidual or  class  advantage,  not  the  larger  national  welfare.  The  in- 
terests of  capitalists  and  of  the  newly  arriving  immigrants  are  abun- 
dantly considered ;  the  interests  of  the  mass  of  the  people  now  here 
are  ovei  looked. 

247.     The  Immigrant  an  Industrial  Peasant?** 

BY  H.  G.  WELLS 

Will  the  reader  please  remember  that  I've  been  just  a  few  weeks 
in  the  States  altogether,  and  value  my  impressions  at  that!  And 
will  he,  nevertheless,  read  of  doubts  that  won't  diminish.  I  doubt 
very  much  if  America  is  going  to  assimilatg  all  that  she  is  taking 
in  now ;  much  more  do  I  doubt  that  she  will  assimilate  the  still 
greater  inflow  of  the  coming  years.     I  believe  she  is  going  to  find 

** Adapted  from  The  Future  in  America.  142-14';:  Copyright  by  Harper  & 
Bros.  (1906). 


502  CURRENT  ECONOMIC  PROBLEMS 

infinite  difficulties  in  that  task.  By  "assimilate"  I  mean  make  intel- 
ligently cooperative  citizens  of  these  people.  She  will,  I  have  no 
doubt  whatever,  impose  upon  them  a  bare  use  of  the  English  lan- 
guage, and  give  them  votes  and  certain  patriotic  persuasions,  but 
I  believe  that  if  things  go  on  as  they  are  going  the  great  mass  of 
them  will  remain  a  very  low  class — will  remain  largely  illiterate 
industrialized  peasants.  They  are  decent-minded  peasant  people, 
orderly,  industrious  people,  rather  dirty  in  their  habits,  and  with  a 
low  standard  of  life.  Wherever  they  accumulate  in  numbers  they 
present  to  my  eye  a  social  phase  far  below  the  level  of  either  Eng- 
land, France,  north  Italy,  or  Switzerland.  And,  frankly,  I  do  not 
find  the  American  nation  has  either  in  its  schools — which  are  as 
backward  in  some  States  as  they  are  forward  in  others — in  its  press, 
in  its  religious  bodies  or  its  general  tone,  any  organized  means  or 
effectual  influences  for  raising  these  huge  masses  of  humanity  to 
the  requirements  of  an  ideal  modern  civilization.  They  are,  to  my 
mind,  "biting  off  more  than  they  can  chaw"  in  this  matter. 

Bear  in  mind  always  that  this  is  just  one  questioning  individual's 
impression.  It  seems  to  me  that  the  immigrant  arrives  an  artless, 
rather  uncivilized,  pious,  goodhearted  peasant,  with  a  disposition 
towards  submissive  industry  and  rude  effectual  moral  habits.  Amer- 
ica, it  is  alleged,  makes  a  man  of  him.  It  seems  to  me  that  all  too 
often  she  makes  an  infuriated  toiler  of  him,  tempts  him  with  dol- 
lars and  speeds  him  up  with  competition,  hardens  him,  coarsens  his 
manners,  and,  worst  crime  of  all,  lures  and  forces  him  to  sell  his 
children  into  toil.  The  home  of  the  immigrant  in  America  looks 
to  me  worse  than  the  home  he  came  from  in  Italy.  It  is  just  as 
dirty,  it  is  far  less  simple  and  beautiful,  the  food  is  no  more  whole- 
some, the  moral  atmosphere  far  less  wholesome;  and,  as  a  conse- 
quence, the  child  of  the  immigrant  is  a  worse  man  than  his  father. 

I  am  fully  aware  of  the  generosity,  the  nobility  of  sentiment, 
which  underlies  the  American  objection  to  any  hindrance  to  immi- 
gration. But  -either  that  general  sentiment  should  be  carried  out 
to  a  logical  completeness  and  gigantic  and  costly  machinery  organ- 
ized to  educate  and  civilize  these  people  as  they  come  in,  or  it  should 
be  chastened  to  restrict  the  inflow  to  numbers  assimilable  under 
existing  conditions.  At  present,  if  we  disregard  sentiment,  if  we 
deny  the  alleged  need  of  gross  flattery  whenever  one  writes  of 
America  for  Americai^,  and  state  the  bare  facts  of  the  case,  they 
amount  to  this:  that  America,  in  the  urgent  process  of  individual- 
istic industrial  development,  in  its  feverish  haste  to  get  through 
with  its  material  possibilities,  is  importing  a  large  portion  of  the 
peasantry  of  central  and  eastern  Europe,  and  converting  it  into  a 


POPULATION  AND  IMMIGRATION  503 

practically  illiterate  industrial  proletariat.  In  doing  this  it  is  doing 
a  something  that,  however  different  in  spirit,  differs  from  the  slave 
trade  of  its  early  history  only  in  the  narrower  gap  between  em- 
ployer and  laborer.  In  the  "colored"  population  America  has  al- 
ready ten  million  descendants  of  unassimilated  and  perhaps  unas- 
similable  labor  immigrants.  These  people  are  not  only  half  civilized 
and  ignorant,  but  they  have  infected  the  white  population  about 
them  with  a  kindred  ignorance.  For  there  can  be  no  doubt  that  if 
an  Englishman  or  Scotchman  of  the  year  1500  were  to  return  to 
earth  and  seek  his  most  retrograde  and  decivilized  descendants,  he 
would  find  them  at  last  among  the  white  and  colored  population 
south  of  Washington.  And  I  have  a  foreboding  that  in  this  mixed 
flood  of  workers  that  pours  into  America  by  the  million  today,  in 
this  torrent  of  ignorance,  against  which  that  heroic  being,  the 
schoolmarm,  battles  at  present  all  unaided  by  men,  there  is  to  be 
found  the  possibility  of  another  dreadful  separation  of  class  and 
kind,  a  separation  perhaps  not  so  profound  but  far  more  universal. 
One  sees  the  possibility '  of  a  rich  industrial  and  mercantile  aris- 
tocracy of  western  European  origin,  dominating  a  darker-haired, 
darker-eyed,  uneducated  proletariat  from  central  and  eastern  Eu- 
rope. The  immigrants  are  being  given  votes,  I  know,  but  that  does 
not  free  them,  it  only  enslaves  the  country.  The  n^roes  were 
given  votes. 

These  are  all  mitigations  of  the  outlook,  but  still  the  dark 
shadow  of  disastrous  possibility  remains.  The  immigrant  comes 
in  to  weaken  and  confuse  the  counsels  of  labor,  to  serve  the  pur- 
poses of  corruption,  to  complicate  any  economic  and  social  develop- 
ment, above  all  to  retard  enormously  the  development  of  that  na- 
tional consciousness  and  will  on  which  the  hope  of  the  future 
depends. 

248.    The  Influence  of  the  Immigrant  on  America** 

BY  WALTER  E.  WEYL 

When  we  seek  to  discover  what  is  the  exact  influence  of  the  im- 
migrant upon  his  new  environ^pent,  we  are  met  with  difficulties  al- 
most insurmountable.  Social  phenomena  are  difficult  to  isolate. 
The  immigrant  is  not  merely  an  immigrant.  He  is  also  a  wage- 
earner,  a  city-dweller,  perhaps,  also  an  illiterate.  Wage-earning, 
city-dwelling,  and  illiteracy  are  all  contributing  influences.     Your 

**  Adapted  from  "New  Americans,"  in  Harper's  Monthly  Magazine 
CXXIX,  616-617,  620-622.     Copyright  (1914). 


504  CURRENT  ECONOMIC  PROBLEMS 

immigrant  is  a  citizen  of  a  new  factory,  of  the  great  industrial 
state,  within,  yet  almost  overshadowing  the  political  state.  Into 
each  of  our  problems — wages  and  labor,  illiteracy,  crime,  vice,  in- 
sanity, pauperism,  democracy — the  immigrant  enters. 

There  is  in  all  the  world  no  more  difficult,  no  more  utterly  be- 
wildering problem  than  this  of  the  intermingling  of  races.  Already 
twenty  million  immigrants  have  come  to  stay.  To  interpret  this 
pouring  of  new,  strange  millions  into  the  old,  to  trace  its  results 
upon  the  manners,  the  morals,  the  emotional  and  intellectual  reac- 
tions of  the  Americans,  is  like  searching  out  the  yellow  waters  of 
the  Missouri  in  the  vast  floods  of  the  lower  Mississippi.  Our  immi- 
grating races  are  many,  and  they  meet  diverse  kinds  of  native  Amer- 
icans on  varying  planes  and  at  innumerable  contact  points.  So  com- 
plex is  the  resulting  pattern,  so  multifarious  are  the  threads  inter- 
woven into  so  many  perplexing  combinations,  that  we  struggle  in 
vain  to  unweave  the  weaving. 

When  we  compare  the  America  of  today  with  the  America  of 
half  a  century  ago,  certain  differences  stand  out  sharply.  America 
today  is  far  richer.  It  is  also  more  stratified.  Our  social  gamut 
has  been  widened.  There  are  more  vivid  contrasts,  more  startling 
differences,  in  education  and  in  the  general  chances  of  life.  We  are 
less  rural  and  more  urban,  losing  the  virtues  and  the  vices,  the  excel- 
lences and  the  stupidities  of  country  life,  and  gaining  those  of  the 
city.  We  are  massing  in  our  cities  armies  of  the  poor  to  take  the 
places  of  country  ne'er-do-wells.  We  are  more  sophisticated.  We 
are  more  lax  and  less  narrow.  We  have  lost  our  early  frugal  sim- 
plicity, and  have  become  extravagant.  We  have,  in  short,  created 
a  new  type  of  the  American,  who  lives  in  the  city,  who  reads  news- 
papers and  even  books,  bathes  frequently,  travels  occasionally;  a 
man  fluent  intellectually  and  physically  restless,  ready  but  not  pro- 
found, intent  upon  success,  not  without  idealism,  but  somewhat  dis- 
illusioned, pleasure-loving,  hard-working,  humorous.  At  the  same 
time  there  grows  a  sense  of  a  social  maladjustment,  a  sense  of  fail- 
ure in  America  to  live  up  to  expectations,  and  an  intensifying  desire 
to  right  a  not  clearly  perceived  wrong.  There  develops  a  vigorous, 
if  somewhat  vague  and  untrained,  moral  impulse  based  on  social 
rather  than  individual  ethics,  unaesthetic,  democratic,  headlong. 

Although  this  development  might  have  come  about  in  part  at 
least  without  immigration  the  process  has  been  enormously  accele- 
rated by  the  arrival  on  our  shores  of  millions  of  Europeans.  These 
men  came  to  make  a  living,  and  they  made  not  only  their  own  but 
other  men's  fortunes.  They  hastened  the  dissolution  of  old- condi- 
tions; they  undermined  old  standards  by  introducing  new;  their 


POPULATION  AND  IMMIGRATION  505 

very  traditions  facilitated  the  growtli  of  that  traditionless  quality  of 
the  American  mind  which  hastened  our  material  transformation. 

Because  of  his  position  at  the  bottom  of  a  stratified  society  the 
immigrant  does  not  exert  any  large  direct  influence.  His  indirect 
influence,  on  the  other  hand,  is  increased  rather  than  diminished  by 
his  position  at  the  bottom  of  the  structure.  When  he  moves,  all 
superincumbent  groups  must  of  necessity  shift  their  positions.  This 
indirect  influence  is  manifold.  The  immigration  of  enormous  num- 
bers of  unskilled  "interchangeable"  laborers,  who  can  be  moved 
about  like  pawns,  standardizes  our  industries,  facilitates  the  groAvth 
of  stupendous  business  units,  and  generally  promotes  plasticity.  The 
immigrant  by  his  very  readiness  to  be  used  speeds  us  up ;  he  accele- 
rates the  whole  tempo  of  our  industrial  life.  He  changes  completely 
the  "balance  of  power"  in  industry,  politics,  and  social  life  generally. 
The  feverish  speed  of  our  labor,  which  is  so  largely  pathological,  is 
an  index  of  this.  The  arrival  of  ever  fresh  multitudes  adds  to  the 
difficulties  of  securing  a  democratic  control  of  either  industry  or 
politics.  The  presence  of  the  unskilled,  unlettered  immigrant  ex- 
cites the  cupidity  of  men  who  wish  to  make  money  qtyckly  and  do 
not  care  how.  It  makes  an  essentially  kind-hearted  people  callous. 
Why  save  the  lives  of  "wops"?  What  does  it  matter  if  our  industry 
kills  a  few  thousands  more  or  less,  when,  if  we  wish,  we  can  get  mil- 
lions a  year  from  inexhaustible  Europe?  Immigration  acts  to  de- 
stroy our  brakes.    It  keeps  us,  as  a  nation,  transitional. 

Of  course  this  transitional  quality  was  due  partly  to  our  virgin 
continent.  There  was  always  room  in  the  West.  Immigration,  how- 
ever, intensified  and  protracted  the  development.  Each  race  had  to 
fight  for  its  place.  Natives  were  displaced  by  Irish,  who  were  dis- 
placed in  turn  by  Germans,  Russians,  Italians,  Portuguese,  Greeks, 
Syrians.  Whole  trades  were  destroyed  by  one  nation  and  conquered 
by  another.  The  old  homes  of  displaced  nations  were  inhabited  by 
new  peoples;  the  old  peoples  were  shoved  up  or  down,  but,  in  any 
case,  out.  Cities,  factories,  neighborhoods  changed  with  startling 
rapidity.  Connecticut  schools,  once  attended  by  descendants  of  the 
Pilgrims,  became  overfilled  with  dark-eyed  Italian  lads  and  tow- 
headed  Slavs.  Protestant  churches  were  stranded  in  Catholic  or 
Jewish  neighborhoods.  America  changed  rapidly,  feverishly.  The 
rush  and  recklessness  of  our  lives  were  increased  by  the  mild,  law- 
abiding  people  who  came  to  us  from  abroad. 

There  was  a  time  when  all  these  qualities  had  their  good  features. 
So  long  as  we  had  elbow  room  in  the  West,  so  long  as  we  were 
young  and  growing,  with  a  big  continent  to  make  our  mistakes  in, 
even  recklessness  was  a  virtue.     But  today  America  is  no  longer 


5o6         CURRENT  ECONOMIC  PROBLEMS 

elastic ;  the  road  from  bottom  to  top  is  not  so  short  and  not  so  unim- 
peded as  it  once  was.  We  cannot  any  longer  be  sure  that  the  immi- 
grant will  find  his  proper  place  in  eastern  mills  or  on  western  farms 
without  injury  to  others — or  to  himself. 

The  time  has  passed  when  we  believed  that  mere  numbers  was 
all.  Today,  despite  the  whole  network  of  Americanizing  agencies, 
we  have  teeming,  polyglot  slums,  and  the  clash  of  race  with  race  in 
sweatshop  and  factory,  mine  and  lumber  camp.  We  have  a  mixture 
of  ideals,  a  confusion  of  standards,  a  conglomeration  of  clashing 
views  on  life.  We,  the  many-nationed  nation  of  America,  bring  the 
Puritan  tradition,  a  trifle  anaemic  and  thin,  a  little  the  worse  for 
disuse.  The  immigrant  brings  a  Babel  of  traditions,  an  all  too 
plastic  mind,  a  willingness  to  copy  our  virtues  and  our  vices,  to 
imitate  us  for  better  or  for  worse.  All  of  which  hampers  and  delays 
the  formation  of  national  consciousness. 

From  whatever  point  we  view  the  new  America,  we  cannot  help 
seeing  how  intimately  the  changes  have  been  bourid  up  with  our 
immigration,  especially  that  of  recent  years.  The  widening  of  the 
social  gamut  becomes  more  significant  when  we  recall  that  with  un- 
restricted immigration  our  poorest  citizens  are  periodically  recruited 
from  the  poor  of  the  poorest  countries  of  Europe.  Our  differences 
in  education  are  sharply  accentuated  by  our  enormous  development 
of  university  and  high  schools  at  one  end,  and  by  the  increasing 
illiteracy  of  our  immigrants  at  the  other. 

America  today  is  in  transition.  We  have  moved  rapidly  from 
one  industrial  world  to  another,  and  this  progress  has  been  aided  and 
stimulated  by  immigration.  The  psychological  change,  however, 
which  should  have  kept  pace  with  this  industrial  transformation, 
has  been  slower  and  less  complete.  It  has  been  retarded  by  the  very 
rapidity  of  our  immigration.  The  immigrant  is  a  challenge  to  our 
highest  idealism,  but  the  task  of  Americanizing  the  extra  millions  of 
newcomers  has  hindered  progress  in  the  task  of  democratizing 
America. 

H.     THE  QUALITY  OF  POPULATION 

249.    The  Breeding  of  Men*' 

BY  PLATO 

"Then  tell  me,  Glaucon,  how  is  this  result  to  be  attained  ?  For  I 
know  that  you  keep  in  your  house  both  sporting  dogs  and  a  great 
number  of  game  birds.     I  conjure  you,  therefore,  to  inform  me 

"Adapted  from  The  Republic,  V,  459-46o  (385  b.  c). 


POPULATION  AND  IMMIGRATION  507 

whether  you  have  paid  any  attention  to  the  breeding  of  these 

animals." 

"In  what  respect?" 

"In  the  first  place,  though  all  are  well  bred,  are  there  not  some 
which  are,  or  grow  to  be,  superior  to  the  rest  ?" 

"There  are." 

"Do  you  then  breed  from  all  alike,  or  are  you  anxious  to  breed 
as  far  as  possible  from  the  best?" 

"From  the  best." 

"And  if  you  were  to  pursue  a  different  course,  do  you  think  that 
your  breed  of  birds  and  dogs  would  degenerate  very  much?" 

"I  do." 

"Good  heavens !  my  dear  friend,"  I  exclaimed,  "what  very  first- 
rate  men  our  rulers  ought  to  be,  if  the  analogy  holds  with  respect  to 
the  human  race." 

"Well,  it  certainly  does." 

"The  best  of  both  sexes  ought  to  be  brought  together  as  often  as 
possible,  and  the  worst  as  seldom  as  possible,  and  the  issue  of  the 
former  unions  ought  to  be  reared,  and  that  of  the  latter  abandoned, 
if  the  flock  is  to  attain  first-rate  excellence." 

"You  are  perfectly  right." 

"Then  we  shall  have  to  ordain  certain  festivals  at  which  we  shall 
bring  together  the  brides  and  bridegrooms,  and  we  must  have  sacri- 
fices performed,  and  hymns  composed  by  our  poets  in  strains  appro- 
priate to  the  occasion;  but  the  number  of  marriages  we  shall  place 
under  the  control  of  the  magistrates,  in  order  that  they  may,  as  far 
as  they  can,  keep  the  population  at  the  same  point,  taking  into  con- 
sideration the  effects  of  war  and  disease,  and  all  such  agents,  that 
our  city  may,  to  the  best  of  our  power,  be  prevented  from  becoming 
either  too  great  or  too  small." 

250.    Derby  Day  and  Social  Reform** 

Sir  :  Which  is  wrong — the  breeder  of  race  horses  or  Mr.  Lloyd- 
George?  Would  racing  men  do  better  with  their  animals  if  they 
adopted  all  the  methods  which  Parliament  has  imposed  upon  us  in 
recent  years  as  the  right  way  to  improve  the  efficiency  of  the  human 
race?  How  would  it  be  if  they  swept  up  the  whole  equine  progeny 
of  the  country,  each  generation  as  it  came,  and  applied  social  reform 
to  it — if  they  provided  it  with  stables  sanitarily  inspected,  if  they 

**A  letter  published  in  the  London  Times,  May  26,  1909. 


5o8  CURRENT  ECONOMIC  PROBLEMS 

caused  all  its  units  to  pass  under  the  hands  of  certified  trainers,  if 
they  pensioned  off  the  old  hacks,  and  provided  bank  holidays  for  the 
young,  and,  finally,  if  they  left  the  whole  question  of  the  breeding 
of  the  beasts  to  chance?  If  English  racing  men  adopted  our  govern- 
mental system,  is  it  not  certain  that  English  race  horses  would  be 
beaten  everywhere  by  horses  bred  by  selection  ?  Yet  no  one  suggests 
any  interference  with  the  breeding  of  the  human  race.  It  is  only 
royal  marriages  that  have  to  be  publicly  approved.  My  suggestion 
that  the  same  kind  of  interference  should  be  applied  to  the  mar- 
riages of  peers  has  not  exactly  "caught  on."  In  their  case  the  hered- 
itary principle  is  accepted  but  not  scientifically  applied. 

Not  only  does  Parliament  in  its  so-called  wisdom  fail  to  apply 
science  to  the  production  of  hereditary  legislators,  but  in  all  recent 
social  legislation  it  has  actually  penalized  the  fitter  classes  in  society 
in  the  interests  of  the  less  fit.  The  least  fit  in  the  country  are  the 
old  people  who  have  failed  to  provide  any  savings  against  their  old 
age,  and  that  large  class  of  cheats  who  manage  to  pretend  that  they 
are  in  that  case.  An  as  yet  uncounted  number  of  millions  sterling 
is  now  to  be  taken  year  after  year  from  the  fitter  classes  and  doled 
out  to  these  unfittest.  No  one  can  tell  how  many  children  that  would 
have  been  born  to  these  fitter  parents  will  now  have  to  go  unborn. 
The  old  people  used  to  be  supported  by  their  relations,  who  presum- 
ably inherited  a  like  unfitness ;  those  relatives,  now  indirectly  en- 
dowed, can  now  produce  more  children  in  place  of  the  fitter  children 
whose  entry  into  the  world  has  been  blocked.  All  so-called  social 
legislation  tends  to  act  in  the  same  way.  The  birth  rate  of  the  fitter 
is  diminishing  year  by  year  and  we  calmly  sit  by  and  watch  the  con- 
sequent degeneration  of  our  race  with  idle  hands.  We  take  the 
human  rubbish  that  emerges  and  give  it  compulsory  education,  hous- 
ing acts,  inspection  of  all  sorts  and  at  all  seasons,  at  the  expense  of 
the  fitter  class,  and  imagine  that  better  results  will  ensue  than  if  we 
left  the  whole  business  alone.  Are  we  right?  Or  are  the  horse 
breeders  right?  They  have  demonstrably  improved  the  race  of 
horses,  and  with  great  rapidity.  The  old  system  of  "let  alone"  also 
improved,  though  more  slowly,  the  race  of  men.  It  is  only  the  mod- 
ern system  of  penalizing  the  fit  for  the  sake  of  the  unfit  that  seems 
to  be  put  in  action  simultaneously  with,  if  it  does  not  cause,  an  ob- 
served race-degeneration. 

I  am,  Sir,  yours  faithfully, 

Martin  Conway 


POPULATION  AND  IMMIGRATION  509 

251.     Eugenics  and  the  Social  Utopia" 

BY  GEORGE  P.  MUDGE 

With  regard  to  man,  it  is  now  clear  that  what  medicine,  social 
reform,  legislation,  and  philanthropy  have  failed  to  accomplish  can 
be  achieved  by  biology.  Tell  the  student  of  genetics  what  type  of 
nation  we  desire,  within  the  limits  of  the  characters  which  the  nation 
already  possesses,  and  confer  upon  him  adequate  powers,  and  he 
will  evolve  it.  It  is  not  too  much  to  say  that  if  he  were  instructed 
to  evolve  a  "fit"  nation — that  is,  one  of  self-restrained  and  self-sup- 
porting individuals — in  the  course  of  a  few  generations  there  would 
be  neither  workhouses,  hospitals,  unemployables,  congenital  crim- 
inals, or  drunkards. 

Students  of  eugenics  will  turn  with  interest  to  the  concluding 
pages  of  Professor  Bateson's  book;  there  he  deals  with  the  sociolog- 
ical application  of  the  science  of  genetics.  We  commend  every  ad- 
vocate of  social  panaceas  and  of  legislative  interference  with  natural 
processes  to  read  this  part  of  the  book.  In  a  few  well-chosen  sen- 
tences he  gives  expression  to  the  judgment  of  every  biologist,  alike 
of  the  present  and  the  past,  who  has  given  to  social  problems  ade- 
quate and  unbiased  thought.  For  nothing  is  more  evident  to  the 
naturalist  than  that  we  cannot  convert  inherent  vice  into  innate  vir- 
tue, nor  change  leaden  instincts  into  golden  conduct,  nor  "transform 
a  sow's  ear  into  a  silken  purse,"  by  any  known  social  process.  Our 
vast  and  costly  schemes  of  free  compulsory  education,  of  county 
council  scholarships  and  evening  classes,  which  are  among  these 
social  processes  supposed  to  possess  the  magic  virtue  of  trans- 
forming the  world  into  a  fairy  land,  may  be  a  delusion  and  a  danger. 
And  so,  too,  may  be  all  the  other  well-intentioned  but  costly  panaceas 
that  harass,  and  tax,  and  eventually  destroy  the  fit  in  order  to  at- 
tempt— for  they  can  never  achieve — the  salvation  of  the  unfit. 

252.     Immigration  and  Eugenics" 

BY  WAI,TER  E.  WEYL 

We  must  not  forget  that  these  men  and  women  who  file  through 
the  narrow  gates  at  Ellis  Island,  hopeful,  confused,  with  bundles 
of  misconceptions  as  heavy  as  the  great  sacks  upon  their  backs — we 

^'Adapted  from  a  review  of  Bateson's  MendeVs  Principles  of  Heredity, 
in  The  Eugenics  Review,  I,  137  (1909). 

^'Adapted  from  "New  Americans,"  in  Harper's  Monthly  Magazine, 
CXXIX,  615-616.     Copyright  (1914)- 


5IO  CURRENT  ECONOMIC  PROBLEMS 

must  not  forget  that  these  simple,  rough-handed  people  are  the  an- 
cestors of  our  descendants,  the  fathers  and  mothers  of  our  children. 

So  it  has  been  from  the  beginning.  For  a  century  a  swelling 
human  stream  has  poured  across  the  ocean,  fleeing  from  poverty  in 
Europe  to  a  chance  in  America.  One  race  after  another  has  knocked 
at  our  doors,  been  given  admittance,  has  married  us  and  begot  our 
children.  We  could  not  have  told  by  looking  at  them  whether  they 
were  to  be  good  or  bad  progenitors,  for  racially  the  cabin  is  not 
above  the  steerage,  and  dirt,  like  poverty  and  ignorance,  is  but  skin 
deep.  A  few  hours  and  the  stain  of  travel  has  left  the  immigrant's 
cheek;  a  few  years  and  he  loses  the  odor  of  alien  soils;  a  genera- 
tion or  two,  and  those  outlanders  are  irrevocably  our  race,  our 
nation,  our  stock. 

That  stock  a  little  over  a  century  ago  was  almost  pure  British. 
Despite  the  presence  of  Germans,  Dutch,  French,  and  Negroes,  the 
American  was  essentially  an  Englishman  once  removed,  an  Eng- 
lishman stuffed  with  English  traditions,  prejudices,  and  stubborn- 
nesses, reading  English  books,  speaking  English  dialects,  practicing 
English  law  and  English  evasions  of  law,  and  hating  England  with  a 
truly  English  hatred.  Even  after  inimigration  poured  in  upon  us, 
the  English  stock  was  strong  enough  to  impress  upon  the  immi- 
grating races  its  language,  laws,  and  customs.  Nevertheless,  the  in- 
coming millions  profoundly  altered  our  racial  structure.  Today  over 
thirty-two  million  Americans  are  either  foreign  born  or  of  foreign 
parentage.    America  has  become  the  most  composite  of  nations. 

We  cannot  help  seeing  that  such  a  vast  transfusion  of  blood 
must  powerfully  affect  the  character  of  the  American.  What  the 
influence  is  to  be,  however,  whether  for  better  or  for  worse,  is  a 
question  most  baffling.  Our  optimists  conceive  the  future  American, 
the  child  of  this  infinite  intermarrying,  as  a  glorified,  synthetic  per- 
son, replete  with  the  best  qualities  of  all  the  component  races.  He 
is  to  combine  the  sturdiness  of  the  Bulgarian  peasant,  the  poetry  of 
the  Pole,  the  vivid  artistic  perception  of  the  Italian,  the  Jew's  in- 
tensity, the  German's  thoroughness,  the  Irishman's  verve,  the  ten- 
acity of  the  Englishman,  with  the  initiative  and  versatility  of  the 
American.  The  pessimist,  on  the  other  hand,  fears  the  worst. 
America,  he  believes,  is  committing  the  unpardonable  sin;  is  con- 
tracting a  mesalliance,  grotesque  and  gigantic.  We  are  diluting  our 
blood  with  the  blood  of  lesser  breeds.  We  are  suffering  adultera- 
tion. The  stamp  upon  the  coin — the  flag,  the  language,  the  national 
sense — remains,  but  the  silver  is  replaced  by  lead. 

All  of  which  is  singularly  unconvincing.  In  our  own  families, 
the  children  do  not  always  inherit  the  best  qualities  of  father  and 


POPULATION  AND  IMMIGRATION  511 

mother,  and  we  have  no  assurance  that  the  children  of  mixed 
races  have  this  selective  gift  and  rise  superior  to  their  parent  stocks. 
Nor  do  we  know  that  they  fall  below.  We  hear  much  about  "pure" 
races  and  "mongrel"  races.  But  is  there  in  all  the  world  a  pure  race? 
The  Jew,  once  supposed  to  be  of  Levitical  pureness,  is  now  known  to 
be  racially  unorthodox.  The  Englishman  is  not  pure  Anglo-Saxon, 
the  German  is  not  Teutonic,  the  Russian  is  not  Slav.  To  be  mongrel 
may  be  a  virtue  or  a  vice.  We  do  not  know.  The  problem  is  too 
subtle,  too  elusive,  and  we  have  no  approved  receipts  in  this  vast 
eugenic  kitchen.  Intermarrying  will  go  on  whether  we  like  it  or 
loathe  it,  for  love  laughs  at  racial  barriers  and  the  maidens  of  one 
nation  look  fair  to  the  youth  of  another.  Let  the  kettle  boil,  and  let 
us  hope  for  the  best. 

253.    The  Rationale  of  Eugenics*' 

BY  JAMES  A.  FIELD 

A  review  of  what  has  been  accomplished  in  the  field  of  eugenics 
during  the  last  decade  clearly  reveals  that  most  of  the  solid  writing 
and  of  the  really  scientific  and  useful  work  has  come  from  the 
biologists.  The  competent  student  of  economic  and  social  questions 
has  rendered  little  aid.  Perhaps  until  now  his  abstention  from  the 
discussion  has  been  wise.  Experts  were  not  needed  to  repeat  the 
memorable  suggestion  that  a  civilization  which  should  acquire  con- 
trol over  the  qualities  of  the  hirnian  breed  might  thereby  control 
human  welfare  also.  That  suggestion,  vital  in  itself,  has  been 
readily  enough  kept  alive  by  the  conviction  of  the  inexpert  that  any- 
thing is  the  better  for  tinkering ;  meanwhile,  the  biologists  have  been 
coming  more  and  more  to  the  conclusion  that  whoever  can  deter- 
mine marriage  selection  in  the  present  will  determine,  within  large 
limits,  the  physique  and  intellect  of  the  future,  and  will  become  in  a 
new  sense  the  maker  of  history.  But  in  proportion  as  the  biologist 
foreshadows  the  physical  possibilities  of  heredity  and  selection,  the 
want  grows  for  wisdom  with  which  to  utilize  them.  What  sort  of 
history,  then,  is  best  worth  the  making?  What  sort  of  history  does 
it  lie  within  our  power  to  bring  to  pass?  Is  this  momentous  mar- 
riage selection,  from  motives  half  rational,  half  mystical,  in  their 
veneration  of  the  continuance  of  life,  to  prevail  in  spite  of  popular 
ignorance  and  passion?  Or,  leaving  this  question  of  practicability 
for  experience  to  decide,  is  it  after  all  sensible  to  burden  the  present 
generation  with  concern  for  generations  of  the  future  whose  needs 

*^Adapted  from  "The  Progress  of  Eugenics,"  in  the  Quarterly  lournal  of 
Economics,  XXVI,  61-67.     Copyright  (1911). 


512  CURRENT  ECONOMIC  PROBLEMS 

we  can  hardly  foretell ;  and,  in  subservience  to  the  science  of  the  day, 
to  repudiate  instinct  older  than  all  human  experience  by  "falling  in 
love  intelligently"?  We  have  need  of  a  social  philosophy  to  tell  us 
how  far  eugenic  reforms  are  reasonable  and  worth  while. 

Even  in  its  broadly  biological  aspects  eugenics  is  involved  in  the 
long-standing  demarkation  dispute  over  the  respective  jurisdictions 
of  man's  artificial  control  and  the  unmodified  course  of  natural  evo- 
lution. Less  than  twenty  years  ago  one  of  the  greatest  of  biologists, 
writing  on  this  very  subject,  declared  in  no  uncertain  terms  his  dis- 
belief in  the  practice  of  artificial  selection  as  a  means  of  human  bet- 
terment. Knowledge  has  grown,  no  doubt,  since  Evolution  and 
Ethics  was  written,  and  new  discoveries  have  gone  far  to  discredit 
Huxley's  belittlement  of  the  potency  of  human  selective  agencies. 
The  details  of  the  biological  mechanism  by  which  changes  are  ef- 
fected have  become  far  better  known.  More  dubious  is  the  question 
how  much  advance  has  been  made  toward  a  wise  guidance  of  such 
agencies.  For  Huxley,  there  was  "no  hope  that  mere  human  beings 
will  ever  possess  enough  intelligence  to  select  the  fittest."  Possibly 
the  social  consciousness  of  a  people  is  an  abler  guide  than  he  recog- 
nized. Perhaps,  although  the  fittest  stat«  of  society  is  beyond  our 
perception,  we  may  achieve  by  means  of  eugenic  selection  a  succes- 
sion of  experimental  changes  which  seem  to  us  for  the  better.  But 
still  the  order  of  nature  decrees  that  eugenic  experiments  made  in 
haste  are  repented  at  leisure.  The  eugenist  who  modifies  the  race 
type  in  the  present  predetermines  for  better  or  worse  the  mental  and 
physical  endowment  of  distant  posterity.  In  the  final  analysis,  eu- 
genics, like  other  attempts  at  lasting  reform,  must  move  with  the 
stream  of  processes  which  preceded  human  intervention  and  limit  it 
still.  While  in  such  a  stream  a  steered  course  may  well  be  better 
than  mere  drifting,  the  eugenist  in  action  must  always  proceed  with 
the  caution  of  one  who  reckons  with  the  inscrutable. 

If  the  task  of  eugenics  were  to  establish  a  new  aristocracy  of 
inborn  ability,-  the  prospect  of  success  would  be  less  obscure.  The 
historical  institutions  of  ruling  castes  and  hereditary  nobilities  have 
shown  that  the  special  capacity  which  in  one  generation  after  an- 
other can  seize  upon  and  retain  for  itself  special  opportunity  has 
long  been  competent  to  raise  the  family  line  of  its  possessors  above 
their  less  favored  fellowmen.  Now  modern  biology,  from  a  new 
standpoint  and  with  new  significance,  reasserts  the  privilege  of  birth. 
It  is  not  surprising,  therefore,  that  writers  arguing  for  the  eugenic 
selection  which  shall  perpetuate  and  intensify  exceptional  ability, 
have  virtually  proposed  an  aristocratic  social  order  of  a  novel  kind. 
But  every  preferment  of  the  abler  members  of  a  community  is  tanta- 


POPULATION  AND  IMMIGRATION  513 

mount  to  a  degradation  of  the  less  gifted.  To  create  an  exclusive 
caste  founded  on  eugenic  superiority  would  be  to  intensify  the  un- 
happiness  of  such  persons  as  are  already  inferior.  The  principle  of 
the  survival  of.  the  fittest  normally  involves  wholesale  sacrifices  of 
the  unfit ;  but  such  unmitigated  rigor  of  selection  does  not  commend 
itself  as  a  humane  method  of  social  amelioration.  Nor  is  the  temper 
of  the  times  favorable  to  aristocracies  of  any  sort.  It  calls  for  a 
general  betterment  of  the  whole  mass  of  mankind. 

Can  eugenics  bring  to  pass  this  universal  improvement?  Prob- 
ably many  a  devoted  follower  of  the  cause  has  assumed  that  if  its 
benefits  can  be  realized  by  any  they  might  be  extended  to  all.  Such 
was  the  vision  of  Greg:  "Every  damaged  and  inferior  tempera- 
ment might  be  eliminated,  and  every  special  and  superior  one  be 
selected  and  enthroned,  till  the  human  race,  both  in  its  manhood  and 
its  womanhood,  became  one  glorious  fellowship  of  saints,  sages,  and 
athletes;  till  we  were  all  Blondins,  all  Shakespeares,  Pericles,  Soc- 
rates, Columbuses,  and  Fenelons."  But  to  hold  such  opinions  is  to 
ignore  the  relativity  of  success  and  to  miss  the  very  meaning  of  em- 
inence. In  a  world  of  Blondins  a  tightrope  walker  would  command 
no  profit  or  applause.  A  world  of  great  teachers  would  lack  pupils 
to  be  taught.  The  unknown  continent  which  everyone  had  found 
could  hardly  immortalize  its  multitudinous  discoverers.  Nor  could 
any  one  master-dramatist  make  mankind  his  audience  so  long  as  all 
clamored  with  equal  right  for  hearing.  Unfortunately,  too  often  we 
overlook,  in  our  projects  for  reform,  the  comparative  character  of 
individual  attainments  and  individual  happiness.  We  bemoan  the 
rarity  of  greatness,  forgetting  how  largely  the  exceptional  individ- 
uals whom  we  call  great  are  great  because  they  are  exceptional.  If, 
then,  we  are  to  elevate  the  whole  community,  we  must  work  with  a 
standard  free  from  the  element  of  invidiousness ;  for  no  social  re- 
form can  achieve  a  general  improvement  of  men's  positions  relative 
to  the  positions  of  their  fellowmen. 

Apparently,  then  eugenic  selection  is  concerned  not  with  the  con- 
ditions of  eminence  but  with  the  conditions  of  efficiency.  It  must 
work  for  the  internal  efficiency  which  we  roughly  call  sanity  and  a 
good  constitution,  and  for  the  external  efficiency  which  enables  an 
individual,  regardless  of  the  comparative  efficiency  of  other  individ- 
uals, to  make  steady  progress  in  forcing  his  non-human  surround- 
ings into  conformity  with  his  needs.  Doubtless  the  distinctions  here 
applied  are  indefinite.  For  instance,  the  personal  advantages  of 
health  and  strength  are  diminished  if  equal  physical  vigor  becomes 
the  possession  of  all.  Unusual  prowess  in  exploiting  external  phy- 
sical resources  has  notoriously  been  among  the  most  potent  causes  of 


514  CURRENT  ECONOMIC  PROBLEMS 

inequality.  Yet,  in  a  civilization  which  already  ministers  by  pallia- 
tives to  ill-health ;  and  in  which  the  distributed  burden  of  caring  for 
the  incompetent  almost  certainly  drags  more  heavily  on  those  who 
are  stronger  than  would  the  potential  competition  which  incompe- 
tency now  holds  in  check — in  such  a  civilization,  the  promise  of 
gain  to  come  from  the  eradication  of  feeble-mindedness,  or  insanity, 
or  the  proneness  to  consumption  would  outweigh  any  new  stress  of 
circumstance  which  it  would  involve.  And  with  this  alleviation  of 
the  miseries  from  within  might  come  augmented  economic  effi- 
ciency, not  of  the  few  but  of  the  many:  a  general  and  continuous 
advance  in  those  characteristics  of  body  and  mind  which  make  for 
man's  larger  control  of  heretofore  reluctant  gifts  of  nature. 

If  this  sketching  of  the  possibilities  is  even  roughly  true,  it  calls 
again  for  the  verdict  of  the  biologist.  But  it  is  by  no  means  only  the 
biologist  whose  judgment  is  required.  Again  and  again,  in  the 
light  of  biological  discoveries  a  more  adequate  answer  must  be 
sought  to  that  crucial  question,  the  significance  of  which  the  biol- 
ogists have  mostly  failed  to  comprehend :  Granted  that  by  rational 
marriage  selection  certain  recombinations  of  human  characteristics 
can  be  effected  at  will,  what  eugenic  policy  promises  the  maximum 
increase  of  human  welfare?  To  aid  in  answering  this  question  the 
economist  is  needed.  For  health  and  strength  and  intellect  work 
out  the  good  or  ill  fortunes  of  their  possessors  according  to  the  ways 
of  economic  civilization,  and  not  by  process  of  brute  struggle  for 
existence.  Eugenics  is  not  mere  biology.  The  problems  of  eugenics 
are  problems  of  human  society. 


X 

THE   PROBLEMS   OF   ECONOMIC   INSECURITY 

That  "fortune  is  fickle,"  that  "life  is  insecure,"  and  that  "no  one  knows 
what  a  day  may  bring  forth,"  are  among  the  oldest  and  the  best  attested 
generalizations  from  human  experience.  The  problems  associated  with 
insufficiency  of  food,  accident,  sickness,  and  old  age — with  sowing  where  one 
never  reaps — we  have,  quite  proverbially,  always  had  with  us.  But  under 
modern  industrial  conditions,  in  a  developing  system,  such  questions  are  so 
closely  related  to  the  whole  complex  of  life  that  it  is  necessary  for  us,  col- 
lectively as  well  as  individually,  to  "take  thought  for  the  morrow." 

The  machine  system,  production  on  a  large  scale,  pecuniary'  competition, 
dependence  on  distant  and  future  markets,  the  rapid  development  of  tech- 
nique, the  delicate  organization  of  the  "industrial  machine"  and  the  scheme 
of  prices,  the  currents  which  carry  the  shock  of  disturbance  throughout  the 
system,  the  alternation  of  business  optimism  and  pessimism,  the  violent  rhythm 
of  the  economic  cycle,  the  onward  sweep  into  an  unknown  future — all  of 
these  things  prevent  us  from  adequately  guarding  against  what  the  morrow 
has  in  store.  The  insecurity  of  capital  is  attested  by  failures  to  find  pur- 
chasers for  goods,  by  falling  dividends,  by  business  failures,  by  the  sudden 
disappearance  of  capital  values.  But  these  things  were  discussed  in  connec- 
tion with  the  economic  cycle.  It  is  the  insecurity  of  the  laborer  wl.ich  con- 
cerns us  here. 

To  grasp  the  problem  as  a  whole  we  must  appreciate  the  peculiar  posi- 
tion of  the  laborer  in  the  machine  system.  This  can  best  come  from  con- 
trasting, say,  the  villein  on  the  manor  with  the  modem  industrial  "hand." 
Custom  granted  to  the  former  the  use  of  the  same  land  year  after  year, 
exacted  from  him  a  fixed  rent,  forbade  his  dispossession,  and  made  his 
position  permanent.  He  and  the  land  formed  an  inseparable  industrial  unit: 
there  was  always  something  for  him  to  work  with ;  what  he  produced  he 
had.  The  problem  of  want  might  indeed  confront  him;  but  it  was  associated 
with  a  raid  of  an  alien  feudal  lord  upon  his  manor  or  the  failure  of  the 
elements  to  grant  a  full  yield  from  the  earth.  The  group  to  which  he  belonged 
was  established  upon  a  "personal"  basis,  and  was  possessed  of  a  spirit  of 
solidarity.    He  possessed  as  long  as  they  possessed. 

In  modern  industrial  society,  on  the  contrary,  there  is  no  permanent 
association  of  the  laborer  with  the  instruments  of  production.  He  secures 
equipment  with  which  to  work  by  means  of  a  "contract,"  expressed  in  pecun- 
iary terms,  and  running  for  a  stipulated  period.  He  owns  no  equities  in  the 
property  with  which  he  works.  When  the  contrast  expires,  it  need  not  be 
renewed.  No  other  property  owner  is  compelled  to  make  a  new  contract 
with  him.  The  bait  of  higher  wages,  drawing  him  from  place  to  place,  is 
likely  to  prevent  his  identification  with  a  group  animated  by  a  spirit  of 
solidarity.  He  has  the  tremendous  advantages  which  come  from  freedom  of 
movement  and  the  chance  to  take  advantage  of  the  best  opportunity  which 
presents  itself.  He  has  the  disadvantages  which  attend  short-time  contracts. 
These  last  are  outgrowths  of  two  sets  of  conditions ;  first,  those  affecting  em- 
ployment, causing  it  to  increase  or  decrease,  and  to  pay  higher  or  lower 
wages ;  and  second,  his  own  industrial  powers,  which  may  be  partially  im- 
paired or  even  totally  collapse,  from  accident  or  sickness  to  which  he  is 
exposed.  When  they  are  gone,  as  they  will  eventually  be  in  old  age,  he  has 
no  respectable  surety  of  support. 

SIS 


5i6  CURRENT  ECONOMIC  PROBLEMS 

This  larger  problem  involves  several  minor  problems,  very  closely  con- 
nected, and  yet  possessed  each  of  its  peculiar  aspects.  Unemployment,  per- 
haps the  most  difficult  of  these,  is  closely  associated  with  the  short-time 
contract.  With  changing  business  conditions,  the  employer,  who  is  dependent 
upon  pecuniary  returns,  may  find  it  impossible  to  renew  old  contracts. 
Changes  in  technique,  the  disappearance  of  his  market,  and  a  thousand  other 
causes  may  contribute  to  this  result.  It  is  rendered  more  serious  by  the 
ebb  and  flow  in  the  demand  for  labor,  which  is  closely  associated  with  the 
rhythm  of  the  business  cycle.  Unfortunately  the  supply  of  labor,  unlike 
currency,  is  not  possessed  of  the  necessary  elasticity  to  meet  the  changing 
conditions.  The  risks  are  too  unpredictable  for  insurance  to  become  more 
than  a  palliative.  The  solution  of  the  larger  problem  is,  in  general,  associated 
with  that  of  the  other  problems  of  the  cycle. 

Industrial  accidents  occur  because  we  have  not  yet  learned  absolutely 
to  control  the  dangerous  natural  forces  which  we  have  pent  up  in  our 
machines,  and  because  we  have  not  learned  properly  and  exactly  to  adjust 
our  movements  to  these  huge  engines  of  production — and  destruction.  In 
general  their  causes  are  resident  in  the  system  as  a  whole  and  cannot  be 
directly  imputed  to  "individuals."  Unfortunately,  however,  their  consequences 
may  be  quite  concentrated.  They  are  no  respecters  of  persons,  and  are  as 
likely  as  not  to  rob  of  their  productive  abilities  laborers  who  have  families 
dependent  upon  them.  The  problem  involves :  first,  a  prevention  of  industrial 
accidents,  attended  as  they  are  with  great  losses  of  productive  power;  and 
second,  the  devising  of  some  legal  measure  to  compensate  the  injured  and 
innocent  party  for  his  loss. 

Sickness  and  old  age  are  serious  social  problems.  The  former,  through 
the  absence  of  the  laborer  and  the  breaks  in  the  productive  process  which  his 
absence  entails,  piles  up  Jiuge  economic  costs.  Unless  assistance  be  rendered 
at  the  time  of  stress,  sickness  may  lead  to  a  great  loss  of  productive  power 
and  in  many  cases  to  permanent  dependence.  Provision  for  old  age,  under 
short-time  labor  contracts,  is  difficult  and  rarely  is  adequate.  But,  even  if 
individually  made,  there  is  grave  doubt  whether  the  saving  involved  does 
not  deplete  the  income  to  such  an  extent  as  seriously  to  cripple  efficiency. 
At  any  rate  the  feeling  of  insecurity  is  likely  to  hinder  the  laborer's  perform- 
ance of  his  work.  A  scheme  of  insurance  should  be  able  greatly  to  reduce 
the  wastes  incident  to  both  of  these  universal  occurrences.  What  is  needed 
is  a  long-time  calculation,  based  on  the  whole  life  of  the  laborer,  not  a  series 
of  short-time  calculations  such  as  labor-contracts  make  necessary. 

Finally  there  is  the  problem  of  insecurity  due  to  wages  too  low  to  yield 
a  decent  standard  of  living.  There  is  just  now  a  disposition  to  try  to  solve 
this  problem  by  the  establishment  of  "minimum-wage  scales."  The  problem 
is  one  of  the  most  difficult  in  the  field  of  economics.  If  the  "natural,"  or  com- 
petitive, wage  is  to  be  set  aside  as  too  low,  what  standard  can  be  found  to 
determine  the  proper  wage?  Will  there  not  be  evasion  of  laws  prescribing 
"artificial"  wages?  To  prevent  this,  will  not  the  government  be  compelled 
to  regulate  prices,  service,  hiring  and  discharge,  accounting  systems,  dis- 
cipline, etc?  Will  not  the  experience  of  the  government  in  attempting  to 
prevent  rebates  be  duplicated?  What  will  be  the  influence  of  regulation  on 
the  investment  of  capital  in  the  industries  involved?  To  what  lengths,  and 
to  the  adoption  of  what  new  social  schemes,  will  this  policy  carry  us?  Can 
the  project  be  made  to  succeed  without  a  supplementary  control  of  the  supply 
of  labor?  Would  it  not  be  better  to  try  to  solve  the  question  through  an 
attempt  to  decrease  the  numbers  of  the  lower  class,  and  through  technical 
education?  It  seems,  from  the  study  which  we  made  above  of  "artificial 
price  determination,"  that  prices  seriously  at  variance  with  competitive 
prices  cannot  be  enforced.  Such  an  attempt  would  have  far  greater  chances 
of  success,  if  accompanied  by  eflforts  to  restrict  the  supply  or  increase  the 
efficiency  of  labor.  A  conscious  "control  of  births,"  a  restriction  of  immigra- 
tion, vocational  guidance,  and  compulsory  technical  training  should  do  much 


ECONOMIC  INSECURITY  517 

to  make  the  minimum  wage  effective.  If  we  can  wait  for  slowly  changing  con- 
ditions to  produce  results,  and  if  we  do  not  force  a  single  proposal  to  carry 
the  whole  burden  of  raising  low  wages,  eventually  we  should  expect  success. 
The  problem  of  economic  insecurity  occurs  in  its  most  aggravating  form 
among  unskilled  and  unorganized  laborers.  State  aid  will  help  them;  but 
it  will  not  free  them  from  the  necessity  of  working  out  their  own  salvation. 
Skilled  and  organi7ed  laborers  should  be  able  to  solve  their  own  problem 
through  their  effective  device  of  collective  bargaining. 

A.     INSECURITY  UNDER  MODERN  INDUSTRIALISM 
254.     Competition  and  Personal  Insecurity^ 

BY  THOMAS  KIRKUP 

Perhaps  the  most  painful  feature  of  the  working  man's  lot  is  the 
insecurity  of  his  position.  During  the  long  periods  of  depression 
work  is  scarce  and  precarious,  and  he  must  go  where  he  has  a  chance 
of  finding  it.  At  all  times  the  changes  in  the  labor  market  are  so 
great  and  unexpected  that  he  can  hardly  calculate  upon  a  settled  ex- 
istence. Continual  fluctuations  of  trade  force  him  to  move.  He  has 
no  control,  or  only  a  very  partial  control,  over  the  economic  and 
social  conditions  under  which  he  must  work.  A  settled  home,  a 
piece  of  land  for  a  garden,  a  fixed  outlook  for  his  family,  and  a 
reasonable  prospect  of  a  happy  and  comfortable  old  age,  untroubled 
by  the  horror  of  losing  such  savings  as  he  may  have  made,  through 
want  of  employment,  and  of  ending  his  days  in  a  workhouse — these 
for  a  large  proportion  of  the  workmen  in  the  industrial  centers  are 
unattainable  blessings.  Yet  they  are  unquestionably  such  as  every 
decent  and  honorable  working  man  has  a  right  to  expect. 

This  condition  of  insecurity  under  the  existing  system  of  com- 
petition, however,  is  by  no  means  a  special  evil  of  the  workman. 
It  is  the  common  lot  of  all  who  are  involved  in  it,  and,  not  the  least, 
of  the  capitalists  who  are  exposed  to  ruin  by  it.  The  conditions  of 
industry  are  not  only  beyond  the  control  of  the  workmen  who  serve 
under  the  capitalistic  system.  They  are  beyond  the  effective  con- 
trol also  of  the  individual  capitalists  whose  function  it  is  to  direct 
them,  so  that  competition  frequently  degenerates  into  disorder,  and 
into  an  exterminating  war  carried  on  with  all  the  weapons  permit- 
ted by  the  law,  and  with  many  not  permitted  by  law — underselling, 
adulteration,  fraud,  bribery,  oppression  of  labor.  In  times  when  in- 
dustry is  expanding,  this  may  not  be  so  apparent,  but  when  trade 
becomes  dull,  stationary,  or  retrograde,  the  struggle  grows  painful, 
and  to  many  of  the  competitors  disastrous.     In  this  struggle  many 

^Adapted  from  An  Inquiry  into  Socialism,  6^74.  Copyright  by  Longmans. 
Green  &  Co.  (1907). 


5i8  CURRENT  ECONOMIC  PROBLEMS 

capitalists  are  ruined,  dragging  down  with  them  numbers  of  work- 
men who  have  no  control  of  their  economic  position,  and  are  help- 
less under  the  calamity. 

This  insecurity  is  essentially  connected  with  the  speculative  char- 
acter of  the  competitive  business.  As  production  is  so  often  carried 
on  for  a  market  of  unknown  and  incalculable  extent,  and  for  prices 
which,  even  if  obtained,  cannot  be  accurately  foreseen,  uncertainty 
must  very  greatly  prevail,  and  the  speculative  spirit  must  power- 
fully affect  the  general  course  of  business.  This  spirit  of  specula- 
tion culminates  in  the  great  Exchanges,  disturbs  legitimate  trade, 
and  not  infrequently  throws  into  insecurity,  panic,  and  disorder  the 
industrial  operations  of  the  country,  sometimes  of  the  civilized  world. 

In  the  history  of  the  capitalistic  system  nothing  is  so  extraor- 
dinary as  the  rapid  development  of  mechanical  power.  It  is  only 
natural,  when  the  prizes  of  success  are  so  enormous  and  the  penal- 
ties of  failure  so  severe,  that  human  ingenuity  and  energy  should 
be  wonderfully  quickened.  This  development  of  industrial  power 
still  pontinues  in  every  country  where  modern  methods  have  been 
introduced.  But  there  is  a  serious  evil  connected  with  it.  This  is 
the  fact  that  labor,  which  is  one  of  the  greatest  factors  of  produc- 
tion, is  thrown  out  of  employment  through  this  excessive  develop- 
ment of  machinery.  But  as  the  laborers  form  the  bulk  of  the 
population  and  should  be  by  far  the  largest  purchasers,  the  very 
force  which  tends  to  over-fill  the  markets  tends  also  to  restrict  the 
purchasing  power  of  the  majority  of  the  community.  Thus  industry 
under  the  competitive  system  runs  and  must  run  in  a  vicious  circle. 

All  the  phenomena  of  competitive  anarchy  find  their  worst  de- 
velopment in  the  great  commercial  and  industrial  crises  which  con- 
tinually recur,  and  now  threaten  to  become  not  only  universal  but 
chronic.  It  is  unnecessary  to  recount  the  familiar  phenomena  of  an 
industrial  crisis.  We  have  a  multitude  of  competing  capitalists  of 
every  class  with  a  market  which  may  be  as  wide  as  the  world.  Each 
has  a  vague  prospect  of  vast  possibilities  of  gain  before  him,  and 
when  trade  is  favorable  each  is  anxious  to  make  the  most  of  his 
opportunities.  Machinery  is  improved,  establishments  are  enlarged, 
and  better  organized,  production  grows  lively,  vigorous,  and  rapid 
in  an  ever  increasing  ratio  till  it  becomes  an  impetuous  and  feverish 
rush.  Before  long  the  over-filled  markets  are  unable  to  take  off  the 
enormous  supply.  Goods  will  not  sell.  Embarrassments  set  in, 
followed  by  forced  sales  at  any  price.  Inflation  and  over-confidence 
give  place  to  insecurity  and  panic.  Then  comes  the  crash  result- 
ing in  ruin  to  thousands  of  capitalists  and  in  widespread  depression 
and  stagnation.     Hundreds  of  thousands  of"\vorkmen  are  thrown 


ECONOMIC  INSECURITY  519 

out  of  employment.  All  the  classes  that  depend  on  the  operations 
of  capital,  that  is  to  say  the  entire  society,  suffer  more  or  less  from 
the  prevailing  depression.  And  we  have  the  fearful  spectacle  of 
starving  multitudes  in  the  midst  of  overflowing  markets  and  store- 
houses; superabundant  food  and  clothing  and  all  the  other  means 
of  subsistence,  comfort  and  culture,  but  inaccessible  even  to  those 
who  are  most  anxious  to  work ;  vast  numbers  of  men  ruined  through 
the  very  effectiveness  and  perfection  of  the  productive  forces  which 
they  have  themselves  created.  The  workers  starve  because  they 
have  produced  too  much  and  too  well ;  through  the  action  of  mechan- 
ical forces  which  have  been  created,  but  are  not  duly  controlled  by 
man. 

So  long  as  these  productive  forces  are  wielded  in  such  a  chaotic 
way  by  private  capitalists  competing  for  a  world  market,  without 
adequate  knowledge  of  its  needs,  without  arrangement  with  each 
other,  without  system  and  prevision,  so  long  must  such  disorder  last. 
The  capitalist,  too,  suffers  fearfully,  but  it  is  the  workman  that  must 
usually  bear  the  heaviest  burden  of  privation  and  wretchedness. 

255.    Machinery  and  the  Demand  for  Labor* 

BY  JOHN  A.  HOBSON 

The  motive  which  induces  capitalist  employers  to  introduce  into 
an  industry  machinery  which  shall  either  save  labor,  by  doing  the 
work  which  labor  did  before,  or  assist  labor  by  making  it  more 
efficient,  is  a  desire  to  reduce  the  expense  of  production.  A  new 
machine  either  displaces  an  old  machine,  or  it  undertakes  a  process 
of  industry  formerly  done  by  hand  labor  without  machinery. 

When  a  new  process  is  first  tal<en  over  by  machinery  the  ex- 
penses of  making  and  working  the  machines,  as  compared  with  the 
expenses  of  turning  out  a  given  product  by  hand  labor,  will  involve 
a  net  diminution  of  employment.  Proof  of  this  is  the  introduction 
of  the  new  machinery;  otherwise  no  econcMny  would  be  effected. 
Neither  in  economic  theory  nor  in  industrial  practice  is  there  any 
justification  for  the  belief  that  the  net  result  of  improved  machinery 
is  a  maintenance  or  an  increase  of  employment  within  the  particular 
trade,  or  even  within  the  group  of  the  interdependent  trades  en- 
gaged in  producing  or  supplying  a  class  of  commodities.  Still  less 
support  is  there  for  this  belief  as  applied  to  the  trade  of  a  par- 
ticular locality  or  national  area.     While  the  introduction  of  new 

"Adapted  from  The  Evolution  of  Modem  Capitalism,  new  and  revised 
edition,  317-334.    Published  by  Charles  Scribner's  Sons  (1906). 


520  .  CURRENT  ECONOMIC  PROBLEMS 

labor-saving  machinery  in  type-setting  and  printing  has  been  fol- 
lowed by  so  large  an  expansion  of  business  as  to  employ  increased 
numbers  of  workers,  recent  improvements  in  most  British  textile 
mills,  cotton,  woolen,  hemp  mills,  have  been  followed  by  an  absolute 
reduction  of  employment.  Statistics  point  to  the  conclusion  that 
the  further  a  nation  advances  in  the  application  of  labor-saving  ma- 
chinery to  the  production  of  goods  which  satisfy  the  primary  needs 
of  the  population,  the  smaller  the  proportion  of  the  total  employed 
class  engaged  in  these  productive  processes.  The  best  available  sta- 
tistics indicate  that  the  proportion  of  employment  afforded  by  the 
staple  manufacturers  as  a  whole  diminishes  after  modern  machine 
methods  are  well  established,  and  that  the  tendency  is  strongest  in 
those  manufacturers  engaged  in  supplying  ordinary  classes  of  tex- 
tile, metal,  and  other  goods  in  the  home  markets. 

In  order  to  judge  the  net  effect  of  labor-saving  machinery  upon 
the  volume  of  employment,  a  wider  view  is  necessary.  If  the  first 
effect  is  to  cheapen  goods,  we  need  not  look  to  the  expansion  of 
demand  for  this  class  of  goods  to  absorb  the  labor  which  it  is  the 
object  of  the  machine  to  displace.  We  must  look  to  the  expansion 
of  demand  for  other  sorts  of  goods  due  to  the  application  of  the 
elements  of  income  saved  by  the  fall  of  prices  in  the  first  class  of 
goods.  For  instance,  if  cotton  goods  are  cheaper  owing  to  im- 
proved methods  of  production,  the  chief  result  may  be  to  increase 
the  demand  for  furniture. 

This  wider  outlook  enables  us  to  conclude  that  though  the 
effect  of  machinery  may  be  a  reduction  of  employment  in  a  special 
trade  or  group  of  trades,  the  general  result  must  be  to  maintain 
the  same  aggregate  volume  of  employment  as  before,  provided  the 
income  liberated  from  a  particular  demand  is  applied  to  other  de- 
mands for  commodities.  If,  as  may  be  objected,  there  is  a  simul- 
taneous tendency  to  reduce  the  prices  of  most  articles  of  ordinary 
consumption,  by  applying  machine  methods  of  production,  the 
normal  result  would  be  to  stimulate  new  wants,  and  so  to  create 
new  channels  of  production  yielding  employment  to  displaced  labor. 
That  this  is  the  fact  in  the  world  of  industry  no  one  can  seriously 
doubt. 

If  the  improvements  of  machine-methods  were  regular,  gradual, 
and  continuous  in  the  several  industries,  no  considerable  effect  in 
reducing  the  volume  of  employment  would  occur.  But  where  in- 
dustrial improvements  are  sudden,  irregular,  and  incalculable,  na- 
tural adjustment  is  not  possible.  It  is  this  irregular  action  which 
has  proved  so  injurious  to  large  bodies  of  laborers  whose  employ- 
ment is  subjected  to  a  sudden  and  large  shrinkage.     From  time  to 


ECONOMIC  INSECURITY  521 

time  great  numbers  of  skilled  workers  find  the  value  of  their  per- 
sonal skill  cancelled,  and  are  driven  either  to  acquire  a  new  skill 
or  to  compete  in  the  unskilled  market.  Yet  history  certainly  shows 
that  the  fuller  application  of  great  inventions  has  been  slow,  allow- 
ing ample  time  for  adjustment.  In  most  cases  where  distress  has 
been  caused,  the  directly  operative  influence  has  not  been  intro- 
duction of  machinery,  but  sudden  change  of  fashion.  The  sud- 
denly executed  freaks  of  protective  tariffs  have  also  been  a  source 
of  disturbance.  So  far  as  the  displacement  has  been  due  to  ma- 
chinery sufficient  warning  has  been  given  to  check  the  further  flow 
of  labor  into  such  industries  and  to  divert  it  into  other  businesses. 
Moreover  the  changes  which  are  taking  place  in  certain  machine 
industries  favor  the  increasing  adaptability  of  labor.  Many  machine 
processes  are  either  common  to  many  industries,  or  are  so  narrowly 
distinguished  that  a  fairly  intelligent  workman  accustomed  to  one 
can  soon  learn  another. 

Whether  machinery,  apart  from  the  changes  due  to  its  intro- 
duction, favors  regularity  or  irregularity  of  employment,  is  a  ques- 
tion to  which  a  tolerably  definite  answer  can  be  given.  When  the 
employer  has  charge  of  enormous  quantities  of  fixed  capital,  his 
individual  interest  is  strongly  in  favor  of  full  and  regular  employ- 
ment of  labor.  On  the  other  hand  great  fluctuations  in  price  occur 
in  those  commodities  which  require  for  their  production  a  large 
proportion  of  fixed  capital.  These  fluctuations  in  prices  are  ac- 
companied by  corresponding  fluctuations  in  wages  and  irregularity 
of  employment.  Why  this  contradiction?  It  is  that  in  the  several 
units  of  machine-production  we  have  admirable  order  and  adjust- 
ment of  parts.  In  the  aggregate  of  machine  production  we  have 
less  organization  and  more  speculation.  Industry  has  not  yet  adapted 
itself  to  the  changes  in  the  environment  produced  by  machiner}'. 
That  is  all.  Modem  machinery  has  enormously  expanded  the  size 
of  markets,  the  scale  of  competition,  the  complexity  of  demand,  and 
production  is  no  longer  for  a  small,  local,  present  demand,  but  for 
a  large,  world,  future  demand.  Hence  machinery  is  the  direct 
cause  of  the  fluctuations  w^hich  bring  irregularity  of  employment. 

But  there  is  another  force  which  makes  for  an  increase  of  specu- 
lative production.  It  has  been  seen  that  the  proportion  of  the 
workers  engaged  in  producing  comforts  and  luxuries  is  growing, 
while  the  proportion  of  those  producing  the  prime  necessities  of  life 
is  declining.  Hence  the  effect  of  machinery  is  to  drive  ever  and 
ever  larger  numbers  of  workers  from  the  less  to  the  more  imsteady 
employments.  Moreover,  there  is  a  marked  tendency  for  the  de- 
mand for  luxuries  to  beccMne  more  irregular  and  less  amenable  to 


522  CURRENT  ECONOMIC  PROBLEMS 

calculation,  and  a  corresponding  irregularity  is  imposed  upon  the 
trades  producing  them.  This  is  true  of  many  season  and  fashion 
trades.  The  irregularity  of  these  trades  prevents  them  from  reap- 
ing the  full  advantages  of  the  economies  of  machinery.  A  larger 
proportion  of  town  vv^orkers  is  constantly  passing  into  trades  in 
which  changes  in  taste  and  fashion  are  largely  operative. 

Thus  there  are  three  modes  in  which  modern  capitalist  methods 
of  production  cause  temporary  employment: 

1.  Continual  increments  of  labor-saving  machinery  displace 
laborers,  compelling  them  to  remain  unemployed  until  they  have 
adapted  themselves  to  the  new  situgtion. 

2.  Miscalculation,  to  which  machine-industries  with  a  wide 
unstable  market  are  particularly  prone,  bring  about  periodic  depres- 
sions of  trade,  throwing  out  of  employment  large  bodies  of  work- 
ers. 

3.  Economies  of  machine  production  drive  an  increasing  pro- 
portion of  laborers  into  trades  supplying  commodities,  the  demand 
for  which  is  more  irregular,  and  in  which  the  fluctuation  in  the 
demand  for  labor  must  be  greater. 

256.     Economic  Insecurity  and  Insurance' 

BY  WILLIAM  ^.  WIIvLOUCllBY 

In  a  broad  sense  all  forms  of  insurance  may  be  described  as 
social  insurance,  since  social  ends  are  attained  by  them.  As  the 
term  is  now  employed,  however,  it  is  usually  restricted  to  those 
forms  of  insurance  having  to  do  with  contingencies  aflfecting  indi- 
viduals as  opposed  to  those  affecting  property.  It  looks  to  the  con- 
ferring of  pecuniary  benefits  in  all  those  cases  where  for  any  reason 
the  capacity  of  the  individual  to  provide  for  the  support  of  himself 
and  those  dependent  upon  him  is  lessened  or  destroyed.  Stated  in 
another  way,  social  insurance  sets  to  itself  the  task  of  meeting  the 
problem  of  the  economic  insecurity  of  labor. 

Now  what  are  the  contingencies  causing  this  economic  insecurity 
against  which  provision  must  be  made  in  some  way?  On  examina- 
tion we  find  that  a  man's  ability  to  support  himself,  and  to  make  due 
provision  for  those  dependent  upon  him,  is  lessened  or  cut  off: 
(i)  by  his  meeting  with  an  accident  incapacitating  him,  temporarily 
or  permanently,  partially  or  completely,  from  labor;  (2)  by  his 
falling  sick;   (3)  by  his  becoming  permanently  disabled  for  labor 

•Adapted  from  "The  Problem  of  Social  Insurance:  An  Analysis,"  in  the 
American  Labor  Legislation  Review,  III,  159-160  (1913). 


ECONOMIC  INSECURITY  523 

as  the  result  of  old  age  or  failing  powers ;  (4)  by  his  death,  leaving 
a  widow,  children,  or  others  without  adequate  means  for  their 
support;  and   (5)   by  his  inability  to  secure  remunerative  work. 

To  meet  each  of  these  contingencies  resort  has  been  had  to  the 
principles  of  insurance.  Social  insurance  is  thus  a  term  that  has 
been  coined  to  serve  as  a  collective  designation  of:  (i)  Insurance 
against  accidents;  (2)  insurance  against  sickness;  (3)  insurance 
against  old  age  and  invalidity ;  (4)  insurance  against  death,  or,  as  it 
is  more  usually  called,  life  insurance;  and  (5)  insurance  against  un- 
employment. 

Could  a  just  and  workable  plan  of  insurance  covering  these 
several  points  be  worked  out,  the  problem  of  the  economic  security 
of  labor,  one  of  the  greatest  with  which  society  now  has  to  deal, 
would  be  solved.  Is  there  any  social  problem  more  fundamental  or 
more  deserving  of  unremitting  effort? 

Our  first  analysis  thus  resolves  the  problem  of  social  insurance 
into  these  five  branches.  This  division  is  made  not  merely  in  order 
to  bring  out  the  content  or  orbit  of  social  insurance.  It  is  funda- 
mental, since  each  of  these  branches  of  insurance  has  its  own  special 
features  and  problems.  Insurance,  notwithstanding  the  simplicity 
of  the  ideas  underlying  it  as  a  device,  is  an  exceedingly  technical 
science.  Particularly  is  this  true  where  the  human  factor  has  to  be 
dealt  with.  Still  more  is  it  complicated  where  a  departure  is  con- 
templated from  the  system  of  purely  voluntary,  unencouraged, 
unaided  use  of  the  device  on  the  part  of  individuals,  and  resort  is 
proposed  to  the  force  of  social  encouragement,  control  and  con- 
pulsion.  Each  of  these  five  branches  of  social  insurance  thus  has  its 
own  special  problerfis  and  considerations;  they  are  united  only  in 
respect  to  their  ultimate  social  end. 

These  special  problems  can,  in  each  case,  be  distinguished,  for 
purposes  of  consideration,  into  three  distinct  classes :  (a)  the  social, 
(b)  the  administrative,  and  (c)  the  technical.  Of  these  the  first  is 
the  most  fundamental.  Under  this  head  falls  the  great  question  of 
upon  whom  shall  fall  the  burden  of  making  the  contributions  re- 
quired for  the  support  of  the  system.  No  real  progress  can  be  made 
until  we,  the  public,  have  reached  a  conclusion  regarding  the  problem 
of  justice  that  is  here  involved.  As  a  matter  purely  of  right,  of 
justice,  of  bringing  about  the  widest  possible  distribution  of  welfare, 
how  shall  the  financial  burden  entailed  by  the  system  be  distributed? 
In  seeking  to  reach  an  answer  to  this  question  we  find  that  the  choice 
lies  between  placing  the  burden  in  whole  or  in  part  upon  either: 
(i)  the  beneficiary-,  or  workman,  (2)  the  employer,  (3)  the  industry 
in  which  the  workman  is  employed,  or  (4)  the  state. 


524  CURRENT  ECONOMIC  PROBLEMS 

B.     UNEMPLOYMENT 
257.     Character  and  Types  of  Unemployment* 

BY  W.   H.  BEVKRIDCE 

To  grasp  the  problem  of  unemployment  and  free  ourselves  from 
popular  but  erroneous  notions  on  the  subject,  we  must  first  get  a 
clear  impression  of  the  nature  of  the  industrial  system. 

The  popular  conception  is  of  industry  as  rigidly  limited — a  sphere 
of  cast  iron  in  which  men  struggle  for  living  room;  in  which  the 
greater  the  room  taken  by  any  one  man  the  less  must  there  be  for 
others ;  in  which  the  greater  the  number  of  men  the  worse  must 
be  the  case  for  all.  The  true  conception  is  a  sphere  made  of  elastic 
material,  capable  of  expansion  and  being  in  fact  continually  forced 
to  expand  by  the  struggling  of  those  within.  Each  individual  ap- 
pears to  be  and,  no  doubt,  to  some  extent  is,  pressing  upon  the  room 
of  his  neighbors;  the  whole  mass  presses  upward  upon  the  limits 
within  which  it  is  for  the  moment  confined ;  the  result  of  a  particu- 
larly violent  struggle  of  one  man  for  the  room  of  others  may  be 
to  enlarge  appreciably  the  room  for  all. 

This  expansion  of  industry  cannot  readily  be  made  visible,  and  is 
nowhere  recorded  in  direct  and  comprehensive  figures^  It  is  and 
must  always  remain  something  of  a  mystery.  It  does  not  take  place 
evenly.  It  is  perhaps  not  a  thing  to  be  counted  on  forever.  The 
sphere  may  at  last  lose  its  elasticity  and  cease  to  respond  further  to 
the  increasing  pressure  from  within.  That,  if  it  ever  happens,  will 
mean  over-population,  a  diminishing  return  to  labor,  a. falling  stand- 
ard of  life,  and,  unless  the  growth  of  numbers"  be  arrested,  a  grad- 
ual but  certain  return  to  barbarism  for  the  ihimense  majority  of 
people.  For  the  present  it  is  sufficient  to  say  that  the  time  has  not 
come;  it  is  not  within  sight;  it  can  barely  be  imagined.  For  the 
present  the  sphere  of  industry  retains  its  elasticity.  It  expands,  not 
indeed  steadily,  but  still  sufficiently  for  the  people.  It  absorbs  the 
generations  as  they  come.  It  yields  each  fresh  man  on  the  whole 
more  living  and  working  room  than  fell  to  the  lot  of  those  who  went 
before. 

Yet  with  all  this  comes  the  perpetual  cry  of  some  who  find  no 
living  and  working  room  at  all.  The  number  of  the  unemployed 
never  falls  to  zero.  Many  who  recognize  the  indisputable  facts  of 
the  expansion  of  industry  and  the  rising  standard  of  life  are  prone 
to  deny  directly  or  implicitly  the  existence  of  an  unemployment 

'Adapted  from  Unemployment:  A  Problem  of  Industry,  11-14.  Published 
by  Longmans,  Green  &  Co.  (1908). 


ECONOMIC  INSECURITY  525 

problem  at  all.  If  there  are  not  too  many  workmen  in  a  country, 
every  man  who  wants  work  must  be  able  to  obtain^it.  If  any  man 
fails  to  find  room  while  all  around  him  fresh  room  is  opening  up, 
he  must  be  either  unfit  or  unwilling  to  do  so.  He  must  be  "unem- 
ployable," incompetent,  lazy,  sick,  or  infirm. 

Yet  unemployment  is  not  to  be  explained  away  as  the  idleness  of 
the  unemployable.  As  little  can  it  be  treated  as  a  collection  of  acci- 
dents to  individual  working  people  or  individual  firms.  It  is  too 
widespread  and  too  enduring  for  that.  While  the  final  absorption  of 
the  growing  population  in  the  growing  industry  is  accepted  as  being 
for  the  country  still  happily  the  rule,  it  is  no  less  necessary  to  admit 
the  existence  of  facts  modifying  the  completeness  of  this  absorp- 
tion at  certain  times  and  places — indeed,  at  all  times  and  places. 
There  is  no  general  want  of  adjustment  between  the  increase  of 
the  people  and  the  expansion  of  industry,  between  the  rate  of  sup- 
ply of  fresh  labor  and  the  normal  growth  of  the  demand  for  it. 
There  are  specific  imperfections  of  adjustment  which  are  the  causes 
of  unemployment. 

One  of  these  has  long  been  recognized.  While  industry,  as  a 
whole,  grows,  specific  trades  may  decay,  or  change  in  methods  and 
organization.  The  men  who  have  learned  to  live  by  those  trades 
may  find  their  peculiar  and  hard-won  skill  a  drug  on  the  market  and 
themselves  permanently  displaced  from  their  chosen  occupations, 
while  lacking  both  the  youth  and  the  knowledge  to  make  their  way  in 
new  occupations. 

A  second  type  of  maladjustment  between  the  demand  for  and 
the  supply  of  labor  is  found  in  actual  fluctuations  in  industrial  activ- 
ity. Many  trades,  perhaps  most  trades,  pass  regularly  each  year 
through  an  alternation  of  busy  and  slack  seasons,  determined  by 
climate  or  social  habits,  or  a  combination  of  both.  Building  is  slack 
in  winter  and  busy  in  spring  and  summer.  Printers  find  least  to  do 
in  the  August  holidays  and  most  in  the  season  just  before  Christmas. 

Behind  and  apart  from  these  seasonal  vicissitudes  of  special 
trades,  and  affecting,  though  in  various  degrees,  nearly  all  trades  at 
about  the  same  time,  is  a  cyclical  fluctuation  in  which  periods  of 
general  depression  alternate  at  regular  intervals  with  periods  of  fev- 
erish activity.  At  such  times  of  depression  the  industrial  system 
does  appear  to  suffer  a  temporary  loss  of  elasticity ;  it  fails  for  a 
while  to  keep  pace  with  the  steady  growth  of  population ;  it  gives — 
in  a  phase  of  falling  wages  and  lowered  standards — an  object  lesson 
of  what  might  be  expected  if  the  supply  of  labor  should  ever  come 
permanently  to  outstrip  the  demand. 


526  CURRENT  ECONOMIC  PROBLEMS 

These  two  elements  in  the  problem  of  unemployment  have  long 
been  familiar.  A  third,  apparently  far  more  important  than  either 
of  the  occasional  transformations  of  industrial  structure  or  the  pe- 
riodic fluctuations  of  industrial  activity,  is  only  just  beginning  to 
receive  attention.  This  is  the  requirement  in  each  trade  of  reserves 
of  labor  to  meet  the  fluctuations  of  work  incidental  even  to  years  of 
prosperity.  The  men  forn>ing  these  reserves  are  constantly  passing 
in  and  out  of  employment.  They  tend,  moreover,  to  be  always  more 
numerous  than  can  find  employment  together  at  any  one  time.  This 
tendency  springs  directly  from  one  of  the  fundamental  facts  of 
industry — the  dissipation  of  the  demand  for  labor  in  each  trade  be- 
tween many  separate  employers  and  centers  of  employment.  Its 
result  may  be  described  as  the  normal  glutting  of  the  labor  market. 
The  counterpart  of  such  glutting  is  the  idleness  at  every  moment  of 
some  or  others  of  those  engaged. 

The  three  factors  just  mentioned — changes  of  industrial  struc- 
ture, fluctuations  of  industrial  activity,  and  the  reserve  of  labor  rep- 
resent, not  indeed  all,  but  at  least  the  principal  economic  factors  in 
unemployment. 

258.     Wanted:    A  Lrabor  Exchange'^ 

BY  GRBGORY   MASON 

Mankind  has  been  job  hunting  since  the  fall  from  grace  in  Eden. 
Even  in  normal  times,  say  statisticians,  from  3  to  10  per  cent  of  the 
laboring  population  is  out  of  work.  In  periods  of  depression  the 
percentage  is  much  larger.  None  but  the  wildest  theorists  think  all 
unemployment  will  be  done  away  with  this  side  of  the  millennium, 
but  more  and  more  people  are  coming  to  feel  that  the  number  of 
jobless  men  and  women  in  the  United  States  can  be  greatly  reduced 
by  the  injection,  of  a  little  system  into  the  situation.  This  feeling 
is  justified  by  the  fact  that  no  matter  how  hard  times  may  be  there 
is  always  a  number  of  jobs  waiting  to  be  filled. 

At  present  in  this  country  men  and  women  find  jobs  through  four 
mediums:  newspapers,  private  employment  agencies,  charitable  or- 
ganizations, and  undirected  search.  None  of  these  mediums  is  sat- 
isfactory because  none  of  them  is  broad  enough  to  be  in  touch  with 
the  whole  demand  and  the  whole  supply.  A  commission  reported 
not  long  ago  that  "a  surprising  amount  of  unemployment  within  our 

'Adapted  from  "The  Jobless  Man  and  the  State,"  in  Harper's  Weekly': 
March  28,  1914.    Copyright, 


ECONOMIC  INSECURITY  527 

own  state,  over  the  country  as  a  whole,  and  even  in  one  city,  is  due 
to  mere  failure  of  the  demand  for  labor  and  the  supply  to  con- 
nect up." 

In  other  words,  a  good  deal  of  unemployment  in  the  United 
States  is  due  to  the  absence  in  most  states  of  a  centralized  labor 
market.  Labor  is  as  much  a  commodity  as  cotton,  steel,  or  oil,  and 
ihese  commodities  all  have  their  central  markets.  When  a  man 
wants  to  buy  cotton  he  goes  to  a  cotton  exchange.  No  one  ever  saw 
advertised  "cotton  wanted"  or  "oil  wanted,"  yet  the  "help  wanted" 
sign  is  in  a  thousand  windows  in  the  country,  a  symbol  of  ineffi- 
ciency and  waste. 

Sixty  years  ago  the  Germans,  whose  social  instinct  is  deeper  than 
ours,  decided  that  the  bringing  together  of  work  and  workers  was  a 
proper  function  of  the  state.  Then  was  begun  a  great  system  of 
public  labor  exchanges  which  now  fills  annually  more  than  a  mil- 
lion jobs  and  makes  the  lot  of  the  jobless  man  easier  in  Germany 
than  in  any  other  country. 

Ohio  in  1890  was  the  first  American  state  to  follow  the  lead  of 
the  Germans.  Employment  offices  were  opened  in  five  large  cities 
in  the  state.  The  experiment  was  a  success,  and  other  states  began 
to  try  it,  timidly  at  first,  but  more  boldly  and  in  increasing  numbers 
during  the  last  decade,  until  there  are  now  nineteen  states  with 
sixty-one  public  employment  bureaus  in  the  United  States. 

These  state  labor  bureaus  charge  no  fee  for  their  services,  allot 
jobs  impartially — usually  distributing  them  in  the  order  in  which 
applications  are  made — and  undertake  not  to  give  work  to  anyone, 
but  merely  to  introduce  laborers  looking  for  work  to  employers  look- 
ing for  labor.  They  have  won  the  approval  of  trade  unions  by 
maintaining  a  neutral  attitude  in  strikes.  Their  most  important 
function  consists  in  regulating  the  distribution  of  labor  over  an  en- 
tire state.  Where  the  outlook  of  a  private  employment  bureau  is 
local,  a  state  bureau  has  a  bird's-eye  view  of  the  entire  state  and  be- 
yond. For  instance,  in  Wisconsin,  where  the  system  is  more  highly 
developed  than  elsewhere,  a  working  man  can  tell  by  a  glance  at  the 
monthly  labor  bulletin  whether  the  demand  for  lumberjacks  exceeds 
that  for  farm  hands  and  in  what  part  of  the  state  the  lumberjack 
demand  is  the  strongest.  As  soon  as  a  man  is  out  of  work  he  goes 
to  one  of  the  state  employment  agencies  and  learns  in  what  locality 
he  is  most  likely  to  find  a  purchaser  for  his  labor. 

In  America  we  need  a  system  of  free  public  labor  exchanges  in 
every  state  as  well  conducted  as  those  in  Wisconsin,  and  co-ordin- 
ated by  a  central  bureau  at  Washington.  The  latter  is  needed  be- 
cause  unemployment   is   essentially  a   national   question,   and   the 


528  CURRENT  ECONOMIC  PROBLEMS 

power  of  the  state  in  directing  the  stream  of  labor  stops  at  the  state 
boundaries.  Such  a  central  labor  office,  keeping  an  all-embracing 
eye  on  the  labor  market  in  America  and  moving  the  supply  of  labor 
from  onie  state  to  meet  the  demand  in  another  has  been  advocated 
by  the  labor  commissioners  of  a  number  of  states  which  already  sup- 
ply free  labor  brokerage  to  their  inhabitants. 

It  would  be  the  task  of  such  a  central  bureau  to  keep  labor  evenly 
distributed,  removing  the  usual  surplus  from  large  cities  to  the 
labor-hungry  districts  of  the  country.  Such  a  central  bureau  could 
also  minimize  the  evil  effects  of  seasonal  employment,  for  example, 
by  shifting  the  labor  that  is  left  idle  in  agricultural  states  after  the 
harvest  to  localities  where  there  is  ice  or  timber  to  be  cut  or  other 
winter  work  to  be  done. 

Surely  it  is  not  revolutionary  to  propose  that  a  government  that 
dispenses  to  its  citizens  information  on  subjects  ranging  from  crops 
to  first-aid-to-the-injured  should  take  a  hand  in  bringing  together  thc 
man  and  job. 

259.     Cyclical  Distribution  of  Government  Orders® 

BY   SIDNEY   AND   BEATRICE    WEBB 

Without  securing  an  approximate  uniformity,  one  year  with  an- 
other, in  the  aggregate  demand  for  labor  in  the  community  as  a 
whole,  it  is  clear  that  unemployment  on  a  large  scale  cannot  be  pre- 
vented. The  only  possible  way  in  which  that  uniformity  can  be  se- 
cured is  the  use  of  the  government  orders  as  a  counterpoise  to  the 
uncontrollable  fluctuations  in  the  other  orders.  If  this  involved  the 
stopping  of  all  government  orders  in  good  years  and  doing  all  the 
government  work  in  bad  years,  the  proposal  would  be  an  imprac- 
ticable one,  because  the  government  business  must  go  on  contin- 
uously, whatever  the  state  of  the  labor  market.  But  if  the  desired 
result  can  be  achieved  by  rearranging,  within  the  decade,  no  more 
than  3  or  4,  or  even  6  or  8  per  cent  of  the  work  that  would  otherwise 
have  been  done  evenly  year  by  year.  It  is  impossible  to  believe  that 
so  relatively  small  a  readjustment  is  not  possible. 

It  may  be  asked  how  this  policy  differs  from  that  of  relief  works 
now  so  universally  condemned.  In  reality  the  two  policies  are  poles 
asunder.  What  gives  to  relief  works  their  evil  character,  whether 
or  not  they  are  of  any  real  public  utility,  and  whatever  rate  of  wages 

"Adapted  from  The  Prevention  of  Destitution,  114-118.  Published  by 
Longmans,  Green  &  Co.  (1911). 


ECONOMIC  INSECURITY  529 

is  paid,  is  that  the  men  employed  are  taken  on  because  they  are  un- 
employed. Accordingly,  relief  works  are  of  the  nature  of  relief, 
not  prevention.  They  do  not  prevent  the  occurrence  of  unemploy- 
ment; they  do  not  prevent  that  breach  of  continuity  in  the  work- 
man's industrial  life  which  is  so  harmful  to  him.  They  merely 
come  in,  by  way  of  succour,  after  the  breach  of  continuity  has  oc- 
curred. And  by  having  to  take  on  only  those  men  who  have  already 
been  thrown  out  of  work,  and  taking  them  on  because  they  have  been 
thrown  out  of  work,  the  managers  of  relief  works  find  themselves 
necessarily  saddled  with  a  heterogeneous  crowd  of  workmen,  who 
are  not  individually  picked  out  for  employment  because  their  specific 
services  are  required,  in  exactly  due  proportions  to  each  other;  but 
are  taken  en  Hoc,  whatever  their  several  qualifications  and  ante- 
cedents, just  because  they  happen,  at  that  particular  time  and  place, 
to  be  together  unemployed.  Now  it  is  characteristic  of  any  enter- 
prise of  remunerative  character  that  it  involves  a  high  degree  of 
organization,  division  of  labor,  the  employment  of  the  various 
grades  and  kinds  of  workers  required  in  a  certain  exact  proportion 
one  to  another,  and  so  on.  The  result  is  not  being  able,  on  relief 
work,  to  pick  exactly  the  men  having  the  skill  and  antecedents  that 
are  required,  and  of  having,  instead,  to  take  on  a  heterogeneous 
crowd,  is  that  no  industrial  enterprise  of  any  highly  organized  char- 
acter can  possibly  be  undertaken,  and  the  work  accordingly  can 
hardly  ever  be  remunerative,  or  form  part  of  normal  productive 
industry. 

But  it  is  not  so  much  in  the  extravagant  cost,  or  in  the  waste- 
fulness, or  in  the  lack  of  real  utility  that  the  evil  of  relief  work  lies. 
It  is  in  their  bad  effect  upon  the  character  of  the  men  whom  they 
are  intended  to  succor.  The  taking  on  of  the  heterogeneous  crowd, 
not  to  work  each  of  them  at  his  own  trade,  for  his  own  standard  rate, 
but  to  labor  at  some  common  occupation  that  can  simultaneously  find 
employment  for  them  all ;  which  is  known  to  have  been  undertaken 
merely  to  give  them  employment,  from  which  they  cannot  practi- 
cally be  dismissed;  and  where  they  receive  wages  at  a  rate  arbi- 
trarily fixed,  to  a  view  of  what  they  can  live  on  rather  than  to  the 
market  rate  for  any  particular  kind  of  labor,  inevitably  has  an  ad- 
verse psychological  reaction  on  the  men  themselves  and  on  the  fore- 
men over  them. 

Now  contrast  this  with  the  proposal  to  give  to  the  government 
orders  for  works  and  services  unevenly,  and  more  in  the  lean  years, 


530  CURRENT  ECONOMIC  PROBLEMS 

rather  than  evenly  year  by  year.  The  mere  fact  that,  on  the  index 
number  of  unemployment  beginning  to  rise,  the  government  puts  in 
hand  slightly  more  building  work  than  would  otherwise  have  been 
the  case,  orders  rather  more  printing,  somewhat  increases  its  ship- 
building, raises  this  year  the  amount  of  its  orders  for  blankets  and 
sail-cloth  above  the  normal,  and  temporarily  accelerates  the  rate  at 
which  th.e  telegraph  wires  are  being  laid  underground,  and  the  tele- 
phone is  being  extended  to  every  village,  would  not  mean  the  taking 
on  of  any  crowd  of  unemployed  workmen  anywhere. 

What  it  would  mean,  in  the  first  place,  would  be  that  various 
building  firms  and  printing  establishments  all  over  the  country  would 
find  themselves  relieved  from  the  necessity  of  turning  off  men;  some 
shipbuilding  yards  would  be  able  to  abstain  from  the  necessity  of 
reducing  hands;  the  mills  producing  blankets  and  sail-cloth  would 
not  need  to  go  on  short  time ;  and  the  contractors  for  telegraph  and 
telephone  extensions  would  find  themselves  continuing  in  employ- 
ment, and  placing  on  the  government  work  members  of  their  staffs 
whom  they  would  otherwise  have  had  to  dismiss.  All  this  preven- 
tion of  discontinuity  in  the  employment  and  wages  of  tens  of  thou- 
sands of  workmen  all  over  the  country,  and,  for  that  matter,  also  in 
the  profits  of  hundreds  of  employers,  would  automatically  result  in 
preventing  much  other  discontinuity  elsewhere.  Even  the  gramo- 
phone makers  might  find  themselves  continuously,  instead  of  inter- 
mittently, employed ! 

And  where  employers,  by  reason  of  the  enlarged  government  or- 
ders, had  actually  to  engage  additional  men  they  would  do  so,  not 
with  a  view  of  "employing  the  unemployed,"  not  even  of  confining 
themselves  to  the  men  who  were  at  the  moment  actually  out  of  sit- 
uations, but  deliberately,  in  order  to  attract  to  their  service,  it  might 
be  from  some  other  employer's  service,  exactly  the  kinds  and  grades 
of  workmen,  individually  selected  on  their  merits,  as  being  the  most 
skilful  and  the  most  regular  workmen  who  could  then  and  there  be 
found,  in  exactly  the  due  proportion  one  to  another  that  the  expan- 
sion of  the  particular  business  required. 

There  would  in  this  way  be  no  adverse  psychological  effect  on 
the  workmen,  any  more  than  on  the  foreman  who  selected  them  and 
supervised  their  efforts  or  in  the  employer  who  saw  to  it  that  the 
normal  discipline  of  his  establishment  was  maintained.  Instead  it 
would  not  even  occur  to  any  of  them  that  there  was  anything  "arti- 
ficial" or  abnormal  in  the  government  order  for  sail-cloth  or  other 
commodities. 


ECONOMIC  INSECURITY  S31 

260.     Insurance  against  Unemployment' 

BY  W.  H.  BEVERIDGE 

There  is  needed  some  definite  provision  against  the  incalculable 
varieties  of  individual  misfortune  which  attend  the  cyclical  fluctua- 
tions in  most  trades.  This  is  to  be  sought  in  some  form  of  insurance 
against  unemployment. 

The  term  "insurance"  in  this  connection  cannot  be  used  as  a 
term  of  art.  It  must  be  taken  to  apply  loosely  to  any  process  where- 
by each  of  a  number  of  workmen  sets  aside  something  of  his  wages 
while  earning  to  obtain  an  allowance  in  case  of  unemployment.  It 
need  not  be  taken  as  excluding  the  possibility  of  grants  to  the  insur- 
ance fund  from  other  sources.  Its  essence  is  for  the  individual 
workman  an  average  of  earnings  between  good  and  bad  times,  and 
for  the  body  of  workmen  a  sharing  of  the  risk  to  which  they  are  all 
alike  exposed. 

In  this  looser  sense  insurance  is  already  one  of  the  most  impor- 
tant methods  of  dealing  with  unemployment.  It  is  found  in  the 
form  of  benefits  paid  by  many  trade  unions  to  their  unemployed 
members.  These  benefits  are  of  two  principal  types — the  stationary 
or  unemployed  benefit,  strictly  so  called,  and  the  allowance  given  to 
assist  traveling  in  search  of  work. 

In  practice  the  benefits  vary  greatly  from  union  to  union,  both  in 
amount  and  in  duration.  Their  range  is  from  6  shillings  a  week  for 
four  weeks  in  fifty-two  to  14  shillings  a  week  for  twenty,  and  even 
for  thirty  weeks,  in  the  calendar  year.  The  conditions  under  which 
benefits  are  granted  present  the  widest  variety. 

The  system  of  trade  union  benefits  probably  does  more  than  any 
existing  agency  to  provide  against  distress  through  want  of  employ- 
ment. It  does  it  without  injury  to  self-respect  and  at  a  cost  which 
in  comparison  with  the  effect  produced  is  extremely  small.  It  has 
the  outstanding  merit  of  flexibility.  By  substituting  collective  for 
individual  savings  it  shifts  on  to  each  trade,  as  a  whole,  part  of  the 
burden  of  the  necessary  margin  of  idleness. 

The  effectiveness  of  the  system  is  to  be  judged  by  the  fact  that 
members  of  the  unions  paying  any  substantial  unemployed  benefit 
are  hardly  ever  applicants  for  public  charity.  The  allowance  given 
is  not,  in  itself,  adequate.  It  has  to  get  supplemented,  and  does  get 
supplemented,  by  the  earnings  of  wife  and  children,  by  assistance 

^Adapted  from  Unemployment:  A  Problem  of  Industry,  223-227.  Pub- 
lished by  Longmans,  Green  &  Co.  (1908). 


532  CURRENT  ECONOMIC  PROBLEMS 

from  fellow  workmen  and  neighbors,  by  running  into  debt,  by  pawn- 
ing, and  in  other  ways.  It  serves,  however,  as  a  nucleus.  It  keeps 
the  rent  paid.  In  practice  it  prolongs  almost  indefinitely  the  resisting 
power  of  the  unemployed. 

The  method  of  insurance  is  flexible,  as  no  provision  for  relief 
by  employment  can  be  flexible.  No  temporary  or  accidental  stoppage 
is  too  small  for  it.  The  machinery  of  assistance  is  always  ready ;  so 
soon  as  a  man  becomes  unemployed,  from  whatever  cause,  he  has 
only  to  begin  signing  the  vacant  book  in  order  to  become  entitled  to 
an  allowance.  On  the  other  hand,  the  severest  depression  of  trade 
is  hardly  too  great  to  be  dealt  with  in  this  way.  The  relief  once  be- 
gun can  be  and  practically  is  continued  for  the  great  bulk  of  men  so 
long  as  proves  necessary. 

The  method  of  insurance  throws  upon  each  trade  as  a  whole  the 
burden  or  part  of  the  burden  of  its  margin  of  idleness.  Unionism 
substitutes  the  collective  for  the  individual  consciousness,  and  thus 
enables  the  risk  of  unemployment  in  all  its  forms  to  be  appreciated 
as  a  normal  incident  of  industry.  The  individual  finds  the  risk  very 
hard  to  appreciate  and  still  harder  to  provide  against.  He  may  ex- 
pect and  allow  for  occasional  loss  of  earnings  through  bad  weather 
or  ill  luck  or  in  passing  from  one  job  to  the  next.  He  may  expect 
and  allow  for  seasonal  fluctuation.  Cychcal  fluctuation  stands  prac- 
tically on  a  different  footing.  It  comes  at  far  greater  and  less  reg- 
ular intervals;  it  lasts,  not  for  weeks,  but  for  months  or  years. 
Moreover,  it  tends  to  strike  always  the  older  or  weaker  members  of 
a  trade.  In  the  strength  of  his  youth  a  man  may  pass  unscathed 
through  two  or  three  depressions,  to  be  thrown  out  by  the  next  when 
he  is  forty  years  old  or  more. 

In  the  life  of  the  individual  excessive  depression  appears  often  as 
a  unique  disaster.  In  the  life  of  a  great  organization,  exceptional 
depression  is  but  the  downward  phase  of  cyclical  fluctuation — a 
phenomenon  impressive  and  familiar,  writ  large  in  the  records  of 
recurrent  increase  of  the  unemployed  percentage,  recurrent  pressure 
on  the  funds,  recurrent  decline  or  stagnation  of  membership.  For 
such  an  organization  the  proviso  of  unemployed  benefits  becomes 
provision  against  an  absolutely  certain  danger.  Appreciation  of  this 
certainty  reacts  on  wages.  To  keep  its  members  together,  the  union 
helps  them  when  unemployed ;  it  must  therefore  hold  out  for  wages 
sufficient  to  cover  the  heavier  subscriptions  involved.  In  the  shape 
of  these  higher  wages  it  transfers  to  the  trade  as  a  whole  the  burden 
or  part  of  the  burden  of  unemployment. 


ECONOMIC  INSECURITY  533 

Unfortunately  the  application  of  the  system  is  at  present  very 
limited.  Even  a  very  large  number  of  trade  unions  have  no  effec- 
tive provisions  against  unemployment.  Outside  the  trade  unions 
insurance  is  unknown. 

261.     An  Appraisal  of  Unemployment  Insurance* 

BY  WILLIAM  F.  WILLOUGHBY 

The  experiments  that  have  been  made  in  Switzerland  and  else- 
where, while  they  are  not  sufficiently  extensive  to  furnish  con- 
clusive evidence  regarding  the  practicability  of  insurance  against 
unemployment,  are  fully  adequate  to  bring  out  the  chief  consider- 
ations that  must  be  taken  into  account  in  any  attempt  to  organize 
such  a  system. 

An  examination  of  the  nature  of  the  problem  of  unemployment 
shows  that  insurance  principles  are  ill  suited  for  its  solution.  In- 
surance presupposes  that  the  risk  involved  shall  possess  two  char- 
acteristics,— it  must  be  well  defined,  and  it  must  be  the  consequence 
of  a  chance  that  can  be  estimated  with  some  degree  of  certainty. 
The  risk  of  unemployment  conforms  to  neither  of  these  conditions. 
It  is  not  well  defined,  since  there  is  no  fixed  criterion  as  to  what 
work  the  unemployed  should  be  required  to  accept.  It  does  not 
depend  upon  calculable  chance,  because  the  personal  element  in- 
volved in  seeking  and  retaining  work,  to  say  nothing  of  the  un- 
certainty of  the  employer's  action,  enters  so  largely.  Though  lack 
of  employment  is  often  unavoidable  on  the  part  of  the  workingman, 
the  latter's  will  and  energy-  play  such  an  important  part  in  the  mat- 
ter that  any  attempt  to  distinguish  unavoidable  idleness  is  futile. 
Insurance  concerns  itself  with  a  risk  that  can  be  calculated  and 
provided  for  in  advance ;  but  this  cannot  be  done  in  regard  to  lack 
of  employment. 

In  no  case  where  tried,  has  the  attempt  been  made  to  calculate 
risks  and  to  adjust  contributions  accordingly,  or  indeed  to  make 
the  system  self-supporting.  Only  nominal  contributions  have  been 
required  from  members,  while  the  great  burden  of  expense  has 
been  borne  by  the  government  and  by  voluntary  contributors.  In 
reality,  therefore,  it  is  scarcely  proper  to  speak  of  these  institutions 
as  insurance  organizations.  What  has  been  created  is  really  a  more 
methodical  system  of  granting  relief  to  the  unemployed. 

The  problem  of  lack  of  employment  in  the  factory  trades  is 
quite  different  from  that  in  the  building  trades  or  among  ordinary 

■Adapted  from  Workingmen's  Insurance,  375-378.  Copyright  by  T.  Y. 
Crowell  &  Co.  (1898). 


534  CURRENT  ECONOMIC  PROBLEMS 

day  laborers.  It  may  be  confidently  stated  that  any  attempt  to 
introduce  even  a  modified  form  of  insurance  against  unemployment 
should  follow  strictly  trade  lines. 

This,  however,  brings  us  to  the  consideration  of  the  out-of-work 
benefit  features  of  labor  organizations.  If  unemployment  insurance 
should  follow  trade  lines,  every  argument  would  seem  to  indicate 
that  such  efforts  should  be  made  through  existing  organizations  of 
workingmen.  The  great  work  done  by  these  organizations  in  the 
way  of  aiding  their  members  is  well  known.  In  the  United  States 
a  large  part  of  the  expenditures  of  the  trade  unions  likewise  go  for 
this  purpose,  though  it  is  not  possible  to  make  any  exact  statement 
of  the  amount.  This  method  of  granting  relief  possesses  manifest 
advantages.  The  work  of  unions  is  not  charity  but  the  •  highest 
order  of  mutual  aid.  Labor  unions,  moreover,  are  in  a  peculiarly 
favorable  position  to  assist  their  members  in  obtaining  work,  and 
are  able  to  guard  themselves  against  imposition.  Finally,  as  we 
have  seen,  unemployment  is  not  a  condition  beyond  the  control  of  in- 
dividuals, and  does  not  happen  with  a  regularity  that  can  be  cal- 
culated. Insurance  proper  affords  little  room  for  discretion  in 
granting  relief,  while  each  case  of  unemployment  should  be  con- 
sidered upon  its  particular  merits.  Labor  organizations  can  exer- 
cise this  necessary  discretion  in  a  way  that  is  utterly  beyond  the 
power  of  a  municipal  institution. 

The  logical  conclusion  is  that  in  America,  at  least,  provision 
against  lack  of  employment  can  best  be  made  for  the  established 
trades  by  the  men  themselves  through  their  organizations ;  and  that 
this  provision  cannot  be  made  according  to  hard  and  fast  insurance 
principles,  but  must  allow  for  a  certain  elasticity  or  discretion  in  the 
granting  of  relief,  according  to  the  circumstances  of  each  case  and 
the  amount  of  funds  available  for  this  purpose. 


C.     INDUSTRIAL  ACCIDENT 
262.    The  Machine  Process  and  Industrial  Accident® 

BY  E.  H.  DOWNEY 

Work  accidents  in  the  United  States,  according  to  the  best  at- 
tainable estimates,  annually  cause  more  than  35,000  deaths  and  about 
2,000,000  injuries,  whereof  probably  500,000  produce  disability  last- 
ing more  than  one  week.  To  employ  a  telling  comparison  frequently 
made,  the  industrial  casualties  of  a  single  year  in  this  country  alone 

•Adapted  from  History  of  Work  Accident  Indemnity  in  Iowa,  l-S.  Pub- 
lished by  the  State  Historical  Society  of  Iowa  (1912). 


ECONOMIC  INSECURITY  535 

equal  the  average  annual  casualties  of  the  American  Civil  War, 
plus  all  those  of  the  Philippine  War,  increased  by  all  those  of  the 
Russo-Japanese  War.  As  many  men  are  killed  each  fortnight  in  the 
ordinary  course  of  work  as  went  down  with  the  "Titanic."  This 
single  spectacular  catastrophe  appalled  the  civilized  world  and  com- 
pelled governmental  action  in  two  hemispheres ;  while  the  ceaseless, 
day-by-day  destruction  of  the  industrial  juggernaut  excites  so  little 
attention  that  few  states  take  the  trouble  to  record  the  deaths  and 
injuries. 

The  point  especially  to  be  emphasized  in  this  connection  is  that 
the  appalling  waste  of  life  revealed  by  the  above  cited  estimates  is, 
in  great  part,  unavoidable.  Doubtless  the  number  of  work  acci- 
dents may  be  considerably  reduced  in  the  United  States,  as  it  has 
been  reduced  in  Europe,  by  preventive  measures.  Yet  when  all  pos- 
sible precautions  have  been  taken  modem  industry  will  continue  to 
exact  a  fearful  toll  of  life  and  limb.  Even  in  the  German  Empire, 
which  leads  the  world  in  accident  prevention,  there  were  reported  in 
191 1,  the  last  year  for  which  statistics  are  available,  662,321  work 
accidents,  whereof  9,687  terminated  fatally  and  142,965  caused  dis- 
ability for  more  than  thirteen  weeks.  Scientific  accident  prevention 
in  Germany  has  produced  a  lower  accident  rate  and  a  much  lower 
rate  of  fatal  accidents  than  obtains  in  the  United  States,  but  it  has 
left  the  total  casualty  list  of  industry  deplorably  large.  Indeed,  the 
number  of  work  injuries  in  Germany,  as  elsewhere,  is  increasing, 
both  absolutely  and  relatively  to  the  numbers  employed,  as  indus- 
trial development  goes  forward.  The  ugly  fact  is  that  work  acci- 
dents, in  the  main,  are  due  to  causes  inherent  in  mechanical  industry 
on  the  one  hand,  and  in  the  hereditary  traits  of  human  character  on 
the  other  hand. 

In  the  first  place,  a  high  degree  of  hazard  inheres  in  present-day 
methods  of  production.  Modern  technology  makes  use  of  the  most 
subtle  and  resistless  forces  of  nature — forces  whose  powers  of  de- 
struction when  they  escape  control  are  fully  commensurate  with 
their  beneficent  potency  when  kept  in  command.  Moreover,  these 
forces  operate  not  the  simple  hand  tools  of  other  days,  but  a  maze  of 
complicated  machinery  which  the  individual  workman  can  neither 
comprehend  nor  control,  but  to  the  movements  of  which  his  own 
motions  must  closely  conform  in  rate,  range,  and  direction.  Nor  is 
the  worker's  danger  confined  to  the  task  in  which  he  is  himself 
engaged,  nor  to  the  appliances  within  his  vision.  A  multitude  of 
separate  operations  are  combined  into  one  comprehensive  mechanical 


536  CURRENT  ECONOMIC  PROBLEMS 

process,  the  successful  consummation  of  which  requires  the  co-oper- 
ation of  thousands  of  operatives  and  of  countless  pieces  of  appar- 
atus in  such  close  interdependence  that  a  hidden  defect  of  even  a 
minor  part,  or  a  momentary  lapse  of  memory  or  of  attention  by  a 
single  individual  may  imperil  the  lives  of  hundreds.  A  tower  man 
misinterprets  an  order,  or  a  brittle  rail  gives  way,  and  a  train  loaded 
with  human  freight  dashes  to  destruction.  A  miner  tamps  his  "shot" 
with  slack  and  dust  explosion  wipes  out  a  score  of  lives.  A  steel 
beam  yields  to  a  pressure  that  it  was  calculated  to  bear  and  a  rising 
skyscraper  collapses  in  consequence,  burying  a  small  army  of  work- 
men in  the  ruins. 

In  the  second  place,  human  nature,  inherited  from  generations 
that  knew  not  the  machine,  is  imperfectly  fitted  for  the  strain  put 
upon  it  by  mechanical  industry.  Safely  to  perform  their  work  the 
operatives  of  a  modern  mill,  mine,  or  railway  should  think  consis- 
tently in  terms  of  those  mechanical  laws  to  which  alone  present-day 
industrial  processes  are  amenable.  They  should  respond  automat- 
ically to  the  most  varied  mechanical  exigencies,  and  should  be  as 
insensible  to  fatigue  and  as  unvarying  in  behavior  as  the  machines 
they  operate. 

Manifestly  these  are  qualities  which  normal  human  beings  do  not 
possess  in  anything  like  the  requisite  degree.  The  common  man  is 
neither  an  automaton  nor  an  animated  slide-rule.  His  movements 
fall  into  a  natural  rhythm,  indeed,  but  the  beat  is  both  less  rapid  and 
more  irregular  than  the  rhythm  of  most  machines — with  the  conse- 
quence that  he  fails  to  remove  his  hand  before  the  die  descends  or 
allows  himself  to  be  struck  by  the  recoiling  lever.  It  requires  an  ap- 
preciable time  for  the  red  light  or  the  warning  gong  to  penetrate  his 
consciousness,  and  his  response  is  apt  to  be  tardy  or  in  the  wrong 
direction.  Fatigue,  also,  overcomes  him,  slowing  his  movements, 
lengthening  his  reaction  time,  and  diminishing  his  muscular  accuracy 
— thereby  trebly  enhancing  his  liability  to  accident. 

The  machine  technology,  in  fact,  covers  so  small  a  fraction  of 
the  life  history  of  mankind  that  its  discipline  has  not  yet  produced  a 
mechanically  standardized  race,  even  in  those  communities  and 
classes  that  are  industrially  most  advanced.  And  so  there  is  a  great 
number  of  work  injuries  due  to  the  "negligence  of  the  injured  work- 
man"— due,  that  is  to  say,  to  the  shortcomings  of  human  nature  as 
measured  by  the  standards  of  the  mechanician.  This  maladjust- 
ment is  aggravated  by  the  never-ceasing  extension  of  machine  meth- 
ods to  new  fields  of  industry,  and  the  continued  influx  of  children, 
women,  and  untrained  peasants  into  mechanical  employments.    Ac- 


ECONOMIC  INSECURITY  537 

cordingly,  the  proportion  of  accidents  attributable  to  want  of  knowl- 
edge, skill,  strength,  or  care  on  the  part  of  operatives  appears 
everywliere  to  be  increasing. 

There  is,  then,  no  prospect  that  the  "carnage  of  peace"  will  be 
terminated,  as  the  carnage  of  war  may  be,  within  the  predictable 
future.  An  industrial  community  must  face  the  patent  fact  that 
work  injuries  on  a  tremendous  scale  are  a  permanent  feature  of 
modern  life.  Every  mechanical  employment  has  a  predictable  haz- 
ard; of  a  thousand  men  who  climb  to  dizzy  heights  in  erecting  steel 
structures  a  certain  number  will  fall  to  death,  and  of  a  thousand 
girls  who  feed  metal  strips  into  stamping  machines  a  certain  number 
will  have  their  fingers  crushed.  So  regularly  do  such  injuries  occur 
that  every  machine-made  commodity  may  be  said  to  have  a  definite 
cost  in  human  blood  and  tears — a  life  for  so  many  tons  of  coal,  a 
lacerated  hand  for  so  many  laundered  shirts. 

263.     Imputation  of  Responsibility  for  Accidents^" 

a)     Safety  First 

Employees,  before  they  attempt  to  make  couplings  or  to  uncouple, 
will  examine  and  see  that  the  cars  or  engines  to  be  coupled  or  un- 
coupled, couplers,  drawheads,  and  other  appliances  connected  there- 
with, ties,  rails,  tracks,  and  roadbeds,  are  in  good  safe  condition. 
They  must  exercise  great  care  in  coupling  and  uncoupling  cars.  In 
all  cases  sufficient  time  must  be  taken  to  avoid  accident  or  personal 
injury. 

h)     Efficiency  First 

Entirely  too  much  time  is  being  lost,  especially  on  local  trains, 
due  to  train  and  enginemen  not  taking  advantage  of  conditions  in 
order  to  gain  time  doing  work,  switching  and  unloading  and  loading 
freight.  Neither  must  you  wait  until  train  stops  to  get  men  in 
position.  It  is  also  of  the  utmost  importance  that  enginemen  be 
alive,  prompt  to  take  signals,  and  make  quick  moves.  In  this 
respect  it  is  only  necessary  to  call  your  attention  to  the  old  adage, 
which  is  a  true  one,  that  when  train  or  enginemen  do  not  make  good 
on  local  trains  it  thoroughly  demonstrates  those  men  are  detrimental 

^'The  first  of  the  two  selections  given  here  is  an  excerpt  from  an  official 
bulletin  of  a  railway  company;  the  second  is  an  excerpt  from  a  letter  of  in- 
struction to  employees  issued  by  the  same  company.  The  first  suggest*  that 
there  may  be  truth  in  the  frequently  repeated  statement  that  "the  most  effec- 
tive way  for  railroad  employees  to  practice  sabotage  is  to  live  up  to  the  rules 
of  the  company." 


538  CURRENT  ECONOMIC  PROBLEMS 

to  the  service  as  well  as  their  own  personal  interests,  and  such  men, 
instead  of  being  assigned  to  other  runs,  should  be  dispensed  with. 
1  am  calling  your  attention  to  these  matters  with  a  view  of  invigorat- 
ing energy  and  ambition,  in  order  that  your  families  who  are  depend- 
ent on  you  to  make  a  success  shall  not  some  day  point  the  finger  of 
scorn  at  you,  and  that  the  public  may  not  be  able  to  say  you  lost  your 
position  due  to  lack  of  energy  and  interest  in  your  own  personal 
welfare,  for  which  you  can  consistently  place  the  responsibility  on 
no  one  but  yourself. 

264.    Industrial  Accidents  and  the  Theory  of  Negligence^^ 

BY  LEE  K,  I-'RANKElv  AND  MILES  M.  DAWSON 

Let  us  consider  the  principles  which,  only  a  quarter  century  ago, 
determined  the  right  of  a  workman  to  recover  compensation  from 
his  employer.  Those  principles  still  apply,  with  some  modification, 
in  all  the  states  of  the  United  States,  and  have  but  recently  been 
discarded  in  part  by  the  federal  government  itself.  The  elementary 
theory  of  "the  law  of  negligence,"  as  it  is  usually  called,  in  its  rela- 
tion to  the  liability  of  employers  for  financial  loss  to  workmen  and 
their  families,  was  originally  the  same  in  all  civilized  countries.  The 
development  of  the  law  of  liability  has  not  been  identical  in  every 
country,  but  nowhere,  probably,  has  the  principle  been  pushed  so  far 
as  in  the  United  vStates.  The  doctrine  has,  however,  been  modified 
somewhat  by  decisions  of  the  courts  and  by  act  of  our  legislatures. 

The  underlying  principle  of  the  law  of  negligence  is  that  the 
employer  is  liable  only  in  case  he  is  at  fault;  that  is,  he  must  have 
been  neglectful  in  some  respect  and  this  negligence  must  have  been 
the  proximate  and  sole  cause  of  the  accident.  In  that  case  it  declares 
that  he  alone  must  bear  the  financial  burden  of  compensation. 

Liability  of  the  employer  for  his  own  negligence  is  qualified  as 
follows : 

First,  it  is  not  enough  that  he  zvas  the  chief  cause. 

If  the  employe  himself  has  been  negligent  and  if  this  in  any 
degree  contributed  to  the  accident,  the  employer  is  not  held.  This  is 
known  as  the  principle  of  "contributory  negligence."  The  idea  is 
that  the  courts,  not  being  able  to  separate  results  flowing  from  these 
two  causes  and  to  determine  how  much  was  due  to  one  and  how  much 
to  the  other,  v/ill  refuse  to  grant  compensation  if  the  employe's  negli- 
gence contributed  to  the  accident  even  though  only  in  a  slight  degree. 

"Adapted  from  Workingmen's  Insurance  in  Europe,  5-7.  Copyright  by 
the  Russell  Sage  Foundation  (1910). 


ECONOMIC  INSECURITY  539 

Second,  tjie  accident  must  not  have  been  a  consequence  of  the 
ordinary  risks  of  the  occupation. 

If  it  can  be  shown  or  the  conclusion  fairly  be  deducted  that  the 
employe  assumed  this  particular  risk  as  a  condition  of  his  contract 
of  employment,  or  as  the  ordinary  risk  of  his  occupation  of  which 
he  knew  or  was  bound  to  know,  the  employer  is  not  held.  If  the 
employe  was  aware  that  a  certain  danger  existed  and  notwithstanding 
continued  to  work,  this  action  on  his  part  would  bar  recovery.  As 
a  corollary  to  this,  the  courts  have  held  very  generally  that  the  em- 
ploye must  be  presumed  to  know  what  are  the  ordinary  dangers  of 
his  occupation,  and  even  what  are  the  unusual  dangers  connected 
with  continuing  to  perform  the  duties  of  that  occupation,  when  the 
place  where  it  is  carried  on,  or  the  machinery  or  tools  with  which  it 
is  carried  on,  are  defective. 

This  is  called  the  principle  of  "assumption  of  risk."  Some  courts 
have  gone  so  far  as  to  hold  that,  even  though  the  employer  is  required 
by  law  to  keep  the  machinery,  tools,  and  the  place  in  which  the  work 
is  done  in  a  certain  condition  of  safety,  and  that  although  by  failing 
to  do  so  he  has  rendered  himself  liable  to  a  penalty,  the  workman, 
notwithstanding,  will  not  be  able  to  recover  if  he  has  known  of  these 
defects  and  has  nevertheless  continued  to  work.  The  same  courts 
have  also  held  that  the  fact  that  he  has  called  the  defects  to  the 
attention  of  his  employer  and  asked  that  they  be  remedied,  will  not 
render  the  employer  liable  if  the  workman,  notwithstanding  that  the 
defects  have  not  been  remedied,  continues  to  work.  In  fact,  calling 
the  defects  to  the  attention  of  others  prejudices  his  claim  in  that  it 
is  proof  positive  that  he  knows  of  them. 

Third,  the  accident  must  have  been  the  result  of  the  employer's 
oivn  negligence  and  not  that  of  another  employe  or  employes. 

If  the  workman  has  been  injured  because  one  or  more  of  the 
employes  working  with  him  were  negligent,  the  employer  will  not  be 
held.  Thi^  proceeds  from  the  idea  that  each  workman  whose  negli- 
gence has  caused  the  injury  should  himself  be  held  financially  re- 
sponsible; and  since  in  most  cases  he  is  in  fact  financially  irrespon- 
sible and  could  not  respond  to  a  judgment,  the  result  of  the  applica- 
tion of  this  rule  is  that  the  persons  injured  are  not  compensated  at 
all.  This  is  directly  contrary  to  the  rule  which  applies  when  the 
injury  is  to  one  not  an  employe;  in  that  case  the  employer,  under  the 
general  doctrine  of  principal  and  agent,  is  held  liable. 

Yhe  principle  stated  above  is  known  in  practice  as  the  "fellow 
servant"  rule.  It  has  been  carried  so  far  by  some  courts  that  it  is 
difficult  to  see  how  a  corporation  employer  could  be  held  responsible 
at  all,  no  matter  what  officer  or  other  employe  was  negligent.    Even 


540  CURRENT  ECONOMIC  PROBLEMS 

an  officer  is  an  agent  or  employe,  and  therefore  a  fellow  servant  with 
all  other  employes,  although  the  courts  have  usually  not  so  held. 
Except  in  the  case  of  executive  officers,  however,  the  rule  has  been 
applied  so  sweepingly  that,  for  instance,  a  scrubwoman  washing  out 
railway  coaches  might  be  held  to  be  a  fellow  servant  with  the  super- 
intendent of  the  road,  and,  therefore,  without  a  good  claim  against 
the  company  for  negligence  attributable  to  him. 

The  "fellow  servant"  rule  grew  up  in  the  courts  out  of  the 
simplicity  of  the  common  law,  which  in  its  origin  did  not  know 
employers  and  employes  in  the  modern  industrial  or  commercial 
sense,  but  only  "masters"  and  "servants."  The  law  did  not  hold 
the  master  liable,  even  on  the  ground  of  negligence.  It  certainly 
would  have  refused  to  require  him  to  compensate  one  servant  for  the 
negligence  of  another.  This  principle  manifestly  has  little  or  no 
suitability  for  the  uses  of  a  commercial  and  highly  organized  indus- 
trial community,  in  which  much  the  larger  part  of  the  service  per- 
formed by  employes  is  not  for  the  direct  enjoyment  of  the  employer 
but  is  part  of  the  aggregate  cost  of  products  or  services  sold  by  him 
to  the  public  at  a  price  to  cover  all  the  costs.  In  recent  years  the 
"fellow  servant"  rule  has  been  much  relaxed,  first  by  the  courts 
and  later  by  legislatures.  In  many  states  an  employe  who  super- 
vises the  work  and  controls  the  workman  is  held  to  be  a  "vice- 
principal"  and  to  represent  the  employer,  so  that  his  negligence  is 
treated  as  if  it  were  the  negligence  of  the  employer. 

Under  the  rules  of  law  just  outlined,  a  very  large  proportion  of 
the  accidents  which  occur  in  the  industries  of  the  country  go  uncom- 
pensated. In  some  cases,  on  the  other  hand,  the  employer  is  held 
for  substantial  amounts,  and  occasionally  very  large  verdicts  are 
recovered,  but  in  only  a  small  percentage  of  the  cases  is  the  com- 
pensation adequate. 

265.     The  Incidence  of  Work  Accidents^^ 

BY  E.  H.  DOWNEY 

Work  accidents,  in  the  nature  of  the  case,  are  sustained  prin- 
cipally by  wage-earners,  who  are  substantially  propertyless  as  a  mat- 
ter of  course,  who  have  no  savings  to  speak  of,  and  whose  incomes, 
for  the  most  part,  are  too  small  to  leave  any  adequate  margin  for 
accident  insurance.  The  almost  total  absence  of  property  or  savings 
among  wage-workers  is  abundantly  demonstrated  by  tax  reftrns 
and  the  records  of  savings  banks  and  life  insurance  companies. 

^''Adapted  from  History  of  Work  Accid-ent  Indemnity  in  Iowa,  6-8.  Pub- 
lished by  the  State  Historical  Society  of  Iowa   (1912). 


ECONOMIC  INSECURITY  541 

But  wages  statistics  are  yet  more  conclusive  to  the  same  effect.  A 
recent  investigator  of  this  subject,  Professor  Scott  Nearing  of  the 
University  of  Pennsylvania,  concludes  that  one-half  of  the  adult 
male  wage-workers  of  the  United  States  receive  less  than  $500  a 
year;  that  three-fourths  of  them  get  less  than  $600,  and  that  only  10 
per  cent  are  in  receipt  of  more  than  $800  annually.  As  to  women 
wage-workers,  three-fifths  are  receiving  less  than  $325  yearly;  nine- 
tenths  are  paid  less  than  $500,  and  only  one  in  twenty  is  paid  more 
than  $600.  These  estimates  are  well  substantiated  by  the  findings  of 
other  investigators.  More  than  half  of  the  workmen  injured  in  the 
Pittsburgh  district  in  1907  were  earning  less  than  $15  weekly  (mak- 
ing no  allowance  for  unemployment)  at  the  time  of  injury.  Of  the 
men  sustaining  industrial  injuries  in  Minnesota  in  1909-10,  47  per 
cent  were  receiving  less  than  $12.50  and  78  per  cent  were  receiving 
less  than  $15  weekly. 

It  needs  no  argument  to  show  that  families  in  receipt  of  incomes 
such  as  these  can  have  neither  property,  savings  accounts  nor  in- 
surance. And  this  conclusion,  finally,  is  corroborated  by  investiga- 
tions into  the  insurance  actually  carried  by  wage-workers.  Of  132 
married  men  killed  in  Pittsburgh,  only  6  had  insurance  in  substan- 
tial amount  and  only  25  out  of  214  left  savings,  insurance,  and 
trade-union  and  fraternal  benefits  to  the  amount  of  $500  each.  In 
New  York  state  175  working  men  who  suffered  fatal  or  permanently 
disabling  accidents  had  insurance  in  the  aggregate  sum  of  $18,635. 
Nor  are  these  extreme  instances  selected  to  make  out  a  case.  The 
average  value  of  13,488,124  "industrial  insurance"  policies  in  force 
in  1902  was  only  $135.  The  unvarnished  fact  is  that  the  wage- 
earner  neither  does,  nor  can,  provide  for  the  contingencies  of  sick- 
ness, accident,  and  unemployment. 

To  the  wage-worker,  then,  even  when  no  one  but  himself  is  de- 
pendent on  his  earnings,  the  loss  of  a  few  weeks'  wages  means  se- 
rious privation,  and  permanent  incapacity  means  beggary.  But 
quite  half  the  victims  of  work  accidents  are  married  men,  and  a 
majority  of  even  the  unmarried  contribute  to  the  support  of  others. 
For  example,  of  467  fatal  accidents  in  Allegheny  County,  Pennsyl- 
vania, 258  were  sustained  by  married  men  and  129  others  by  reg- 
ular contributors  to  the  support  of  relatives ;  whereas  only  80  of  the 
467  dead  were  wholly  without  dependents.  Of  285  fatal  accidents 
investigated  in  Cuyahoga  County,  Ohio,  176  were  suffered  by  heads 
of  families.  Of  1,476  men  killed  on  the  job  in  New  York  state,  679 
were  the  sole  supporters  of  1,775  dependents,  167  were  the  principal 
supporters  of  520  dependents  and  252  contributed  to  the  support  of 
668  relatives — leaving  but  378,  or  35  per  cent  of  the  whole  number 


542  CURRENT  ECONOMIC  PROBLEMS 

of  deceased,  entirely  without  economic  responsibilities.  In  Wiscon- 
sin 43  per  cent  of  the  injured  workmen  whose  conjugal  conditions 
could  be  learned  by  the  State  Bureau  of  Labor  were  married. 

A  serious  work  accident,  therefore,  commonly  deprives  a  neces- 
sitous family  of  its  sole,  or  chief,  or  at  least  a  very  important,  source 
of  income.  The  inevitable  result,  in  the  absence  of  systematic  acci- 
dent indemnity,  is  poverty,  and  the  long  train  of  social  evils  that 
spring  from  poverty.  It  is  not  only  that  victims  of  unindemnified 
work  accidents  suffer  prolonged  incapacity  and  often  needless  death 
from  want  of  means  to  obtain  proper  care,  not  only  that  families  are 
compelled  to  reduce  a  standard  of  living  already  low,  and  that 
women  and  children  are  forced  into  employments  unsuited  to  their 
age  and  sex,  with  resultant  physical  and  moral  deterioration ;  but  it 
is  that  the  ever-present  fear  of  undeserved  want  goes  far  to  impair 
that  spirit  of  hopefulness  and  enterprise  upon  which  industrial  effi- 
ciency so  largely  depends. 


266.     The  Necessity  of  Employer's  Liability^^ 

BY  ADNA  F.  WEBER 

It  must  be  clear,  upon  reflection,  that  the  conditions  under  which 
modern  industry  is  carried  on  preclude  the  possibility  of  explaining 
every  accident  by  somebody's  negligence.  This  much  was  dimly 
understood  when  various  countries  took  the  first  step  of  shifting  the 
onus  probandi  from  employee  to  employer.  If,  now,  the  employees 
are  not  to  blame  for  the  innumerable  injuries  to  which  they  are  sub- 
ject, why  should  they  be  made  to  bear  the  financial  burden  of  those 
injuries?  Why  should  not  that  burden  be  distributed  over  the 
community  instead  of  being  concentrated  upon  a  certain  number  of 
families  who,  in  any  event,  will  have  to  bear  the  physical  and  mental 
suffering  involved  in  the  death,  crippling,  or  maiming  of  men?  The 
risk  of  ftre  is  undeniably  greater  in  a  gunpowder  mill  than  in  a 
brewery,  but  the  owner  of  the  mill  does  not  bear  the  burden  by 
contenting  himself  with  lower  profits  than  the  brewer's;  he  simply 
pays  for  the  greater  risk  by  higher  rates  of  fire  insurance  and  passes 
the  cost  on  to  the  consuming  public  in  a  higher  price  for  his  product. 
If  the  additional  expense  imposed  upon  a  gunpowder  manufacturer 
through  the  more  frequent  losses  by  fire  can  be  thus  recouped  from 
consumers,  why  should  not  the  expense  of  indemnifying  his  work- 
men for  accidents  be  likewise  made  a  part  of  the  cost  of  production, 

"Adapted  from  an  article  published  in  the  Political  Science  Quarterly, 
XVII,  27^-281.    Copyright  (1902). 


ECONOMIC  INSECURITY  543 

and  thereby  be  transferred  to  the  community  at  large?  Only  one 
thing  will  prevent  such  shifting  of  the  burden,  and  that  is  the  ability 
of  competitors  to  put  their  goods  on  the  market  without  incurring 
like  charges.  Hence  the  law  must  require  all  competitors  in  a  given 
trade  to  make  the  same  compensation  for  the  same  injuries.  This  is 
what  Europe  has  done;  by  compelling  employers  to  compensate 
injured  employees  according  to  a  fixed  scale,  it  has  taxed  the  com- 
munity, through  higher  prices  of  goods,  for  the,  support  of  its  in- 
jured members. 

Many  minds  bred  in  the  philosophy  of  individualism  will  un- 
doubtedly see  in  such  legislation  nothing  but  injustice  to  the  em- 
ployer. In  reahty  such  legislation  is  in  strict  conformance  with  the 
innermost  spirit  of  English  and  American  common  law.  It  recog- 
nizes the  existence  of  undeserved  distress  among  workingmen  and 
undertakes  to  alleviate  their  suflPering  by  giving  them  a  claim  upon 
some  person  who  is  pecuniarily  responsible.  And  that  is  precisely 
the  principle  embodied  in  the  time-honored  common-law  rule  that 
the  principal  is  liable  for  the  acts  of  his  agent. 

The  course  of  reasoning  thus  followed  to  justify  the  principal- 
and-agent  theory  of  liabiHty  also  justified  the  workmen's  compensa- 
tion acts  adopted  by  all  the  leading  countries  of  Europe,  which 
require  the  employer  to  assume  all  the  risks  of  the  employment 
which  he  calls  into  being.  But  while  the  employer  makes  the  prim- 
ary payment,  just  as  he  pays  for  the  wear  and  tear  of  his  machinery 
or  the  loss  of  his  plant  by  fire,  the  consumers  ultimately  pay  the 
cost.  The  alternative  to  such  a  general  distribution  of  the  financial 
burdens  of  industrial  accidents  is  the  present  method,  by  which  the 
entire  burden  is  put  primarily  upon  the  poorest  classes,  and  when  it 
crushes  them,  to  the  damage  of  the  community,  is  at  last  tardily 
assumed  by  the  latter  through  the  public  charities. 

D.     SICKNESS  AND  OLD  AGE 
267.     The  Industrial  Cost  of  Sickness** 

BY  JOSEPH  P.  CHAMBERLAIN 

It  is  important  that  we  should  consider  the  many  shreds  of  in- 
formation which  may  be  pieced  together  to  show  the  extent  and  need 
of  sickness  insurance  in  the  United  States.  No  figures  exist  from 
which  we  may  estimate  accurately  the  probable  amount  of  loss 
caused  by  sickness  in  this  country,  but  a  committee  of  experts  acting 
for  the  American  Association  for  Labor  Legislation  has  estimated 

"Adapted  from  "The  Practicability  of  Compulsory  Sickness  Insurance  in 
America,"  in  the  American  Labor  Legislation  Review,  IV,  52-53  (1914). 


544  CURRENT  ECONOMIC  PROBLEMS 

that  annually  there  are  248,750,000  days  of  sickness  among  workmen 
in  the  United  States,  costing  $792,892,860.  The  United  States  Bu- 
reau of  Labor  reports  that  every  workman  in  the  steel  industry  has 
the  expectation  of  9  days  lost  by  sickness  in  a  year  as  against  4  days 
lost  by  accident,  a  significant  proportion  when  we  realize  that  it  does 
not  cover  the  cases  of  men  forced  by  sickness  to  quit  entirely,  and 
that  only.the  sick  leave  their  work. 

The  burden  is  not  borne  entirely  by  the  working  people.  Sums 
which  would  undoubtedly  amount  to  considerable  in  the  aggregate 
are  paid  by  employers  as  wages  to  sick  employees  and  to  the  differ- 
ent insurance  funds  in  which  both  employer  and  employee  are  in- 
terested. The  extent  of  the  contribution  of  private  charity  may  be 
guessed  by  the  statement  of  the  New  York  Association  for  Improv- 
ing the  Condition  of  the  Poor,  that  40  per  cent  of  the  persons 
helped  by  it  in  1912  became  dependent  On  account  of  sickness,  a 
proportion,  which,  according  to  most  authorities,  is  rather  higher 
than  the  average.  The  contribution  of  the  state  and  the  public, 
through  the  support  of  hospitals  and  dispensaries,  is  a  large  figure. 
Studies  of  social  conditioris  in  New  York  City  show  that  the  dis- 
pensary and  the  hospital  are  the  principal  resources  in  sickness  of 
the  poorest  paid  classes  of  workmen. 

These  sums,  large  though  they  must  be  in  the  aggregate,  leave 
the  huge  bulk  of  the  cost  of  sickness  on  the  shoulders  of  the  work- 
men themselves,  and  to  lessen  in  individual  cases  its  crushing  weight, 
often  increased  by  the  cost  of  burial,  a  widely  extended  system  of 
sickness  and  burial  insurance  has  grown  up.  There  are  a  variety 
of  carriers  of  this  insurance:  (i)  Industrial  and  assessment,  sick- 
ness and  burial  insurance  companies  and  associations;  (2)  estab- 
lishment funds;  (3)  the  lodges  of  large  fraternal  orders  and  small 
local  societies  frequently  affiliated  with  a  church  in  foreign  com- 
munities; (4)  labor-union  locals,  and,  to  some  extent,  national  or- 
ganizations. The  usual  form  of  benefit  is  a  cash  payment  in  the 
event  of  death  and  a  weekly  payment  to  a  person  who  is  unable  to 
earn  from  sickness  or  accident. 

268.     Why  Sickness  Insurance  Should  Be  Compulsory^^ 

BY  I,  M.  RUBINOW 

The  lesson  of  history  is  strongly  in  favor  of  the  compulsory 
principle  in  connection  with  sickness  insurance.  The  considerations 
which  have  led  to  this  conclusion  are  as  follows : 

^'Adapted  from  "Standards  of  Sickness  Insurance,"  in  the  Journal  of 
Political  Economy,  XXIII,  226^227  (1915). 


ECONOMIC  INSECURITY  545 

1.  The  demonstrated  inability  to  bring  the  neediest  strata  of 
the  working  class  into  the  system  by  any  measure  short  of  com- 
pulsion. Under  all  voluntary  systems  the  proportion  of  the  insured 
in  a  definite  labor  group  is  in  inverse  ratio  to  its  economic  status. 
Ability  and  willingness  to  meet  the  cost  of  insurance  presuppose 
the  existence  of  some  surplus  in  the  budget  and  a  sufficient  cultural 
status  for  an  appreciation  of  the  advantages  of  the  insurance  prin- 
ciple. Both  are  least  present  in  the  lower  strata  of  the  wage-work- 
ing class  where  disease  is  most  frequent  and  the  economic  need 
caused  by  disease  greatest.  Experience  has  proved  that  only  by 
compulsion  can  these  be  reached. 

2.  Shifting  the  burden  of  insurance.  A  study  of  the  social 
causes  of  disease  establishes  at  least  a  partial  responsibility  for  ill- 
ness on  the  part  of  industry  and  society.  Justice  would  require 
that  industry  and  society  should  share  in  the  cost  of  sickness  insur- 
ance. But  besides  this  argument  of  abstract  equity,  there  is  the 
economic  fact  that  for  a  large  proportion  of  the  wage- workers  the 
earnings  are  such  as  to  make  the  cost  of  insurance  too  heavy  a  bur- 
den. Both  equity  and  necessity  require  that  at  least  a  part  of  the 
burden  be  shared  by  other  classes  in  society.  The  subsidized  volun- 
tary system  recognizes  this,  and  endeavors  to  relieve  the  burden  by 
a  state  or  local  government  subsidy.  But  only  through  a  compul- 
sory system  does  it  become  possible  to  shift  part  of  the  cost  upon 
the  employer  and  upon  industry  at  large.  The  essential  feature  of 
compulsion  is  exercised  upon  the  employer  who  is  forced  to  meet 
part  of  the  cost. 

3.  Standardization  of  the  insurance  system.  Not  only  the 
quantitative,  but  also  the  qualitative  development  of  the  insurance 
system  must  be  considered.  It  is  important  that  not  only  all  strata 
of  working  men  be  insured,  but  that  the  services  rendered  by  the 
insurance  institutions  be  effective  and  capable  of  meeting  the  prob- 
lems which  call  for  sickness  insurance.  Under  a  subsidized  system 
an  effort  is  usually  made  to  accomplish  this  result  by  exacting  cer- 
tain conditions  before  the  result  is  granted.  At  best  the  require- 
ments of  a  voluntary  system  cannot  be  far  above  the  actual  practice 
of  the  organizations  existing  at  the  time,  or  otherwise  it  is  in  danger 
of  failing  entirely.  It  is  necessary,  as  in  Germany  and  Great  Britain, 
to  enforce  definite  minimum  requirements,  which  are  adjudged 
practical  and  necessary,  while  the  very  contribution  from  industry 
makes  a  higher  minimum  possible. 


546  CURRENT  ECONOMIC  PROBLEMS 

269.     The  British  National  Insurance  Bill 

BY  WARREN  S.  THOMPSON 

The  British  National  Insurance  Bill  is  England's  most  momen- 
tous piece  of  social  legislation,  if  indeed  it  is  not  the  world's.  It  is 
largely  the  result  of  an  extended  visit  which  Mr,  Lloyd-George  made 
to  Germany  in  1908.  He  left  Germany  fully  convinced  that  national 
insurance  was  the  proper  method  of  dealing  with  the  conditions 
which  the  reports  on  the  Poor  Law  showed  to  stand  in  dire  need  of 
immediate  alleviation.  The  significant  part  of  the  bill  is  that  which 
deals  with  heaUh  insurance.    Only  that  part  will  be  discussed  here. 

Under  the  provisions  of  the  part  relating  to  health  all  wage- 
earners  who  receive  less  than  £160  annually,  are  compelled  to  insure 
their  health.  Those  exempted  are  for  the  most  part  in  Government 
employ,  and  already  entitled  to  benefits,  and  those  who  are  not 
dependent  upon  their  work  as  their  chief  means  of  livelihood.  The 
best  actuaries  estimate  that  about  9,200,000  men  and  3,800,000 
women  will  become  members  of  "approved  societies"  when  the  law 
goes  into  effect.  It  will  be  six  months  before  any  benefits  are 
granted  and  two  years  before  anyone  will  receive  "disablement" 
benefits. 

The  contributions  are  payable  weekly.  They  are  divided  be- 
tween the  employer,  the  workman,  and  Parliament,  as  follows:  for 
the  men,  the  employer  pays  3,  the  workman  4,  and  Parliament  2,  out 
of  a  total  of  9  pence ;  for  the  women,  the  employer  3,  the  working- 
woman  3,  and  Parliament  2,  out  of  a  total  of  8  pence.  Special  provi- 
sion is  made  in  the  case  of  those  who  receive  very  low  wages  for  the 
employer  and  Parliament  to  pay  either  the  entire  contribution  or  all 
of  it  but  I  penny.  The  employer  is  held  responsible  for  the  pay- 
ment, both  of  his  own  contribution  and  that  of  the  employee.  The 
payment  is  made  by  the  use  of  stamps  and  the  employer  is  author- 
ized to  deduct  the  employee's  contribution  from  his  weekly  wage. 

There  are  five  benefits  to  be  given:  (i)  Medical  benefit.  This 
includes  medical  attention  and  the  necessary  drugs  when  one  is  ill, 
and  may  be  extended  to  the  dependents  of  the  injured  person  when 
the  authorities  have  the  means  and  deem  it  advisable.  (2)  Sana- 
torium benefit.  This  entitles  a  member  who  has  tuberculosis  or  a 
similar  disease  to  be  treated  in  a  sanatorium  when  it  is  needed. 
This  benefit  also  may  be  extended  to  the  dependents  of  the  injured 
person,  A  definite  amount,  i  shilling  4  pence  is  available  for  each 
member  annually  for  the  payment  of  this  benefit.  This  amount  must 
not  be  exceeded  unless  the  local  authorities  and  the  Treasury  vote 
extra  aid,     (3)   Sickness  benefit.     This  is  a  cash  payment  made 


ECONOMIC  INSECURITY  547 

weekly  to  the  insured  person  or  his  dependents  and  continues  for 
26  weeks.  In  the  case  of  men  it  is  10  shillings  a  week  for  the  first  13 
weeks  and  5  shillings  for  the  second  13  weeks;  in  the  case  of  women 
7  shillings  6  pence  for  the  first  13  weeks  and  5  shillings  for  the 
second  13  weeks.  If  the  financial  condition  of  the  society  permits, 
the  benefits  for  the  second  13  weeks  may  be  increased.  (4)  Disa- 
bility benefit.  This  is  a  weekly  payment  of  5  shillings  to  a  member 
who  is  temporarily  or  permanently  disabled  as  the  result  of  sickness 
or  accident  not  in  any  way  connected  with  his  work.  It  lasts  "so 
long  as  he  is  rendered  unfit  by  the  disease  or  disablement."  (5) 
Maternity  benefit.  This  is  a  lump  sum  of  30  shillings  paid  upon  the 
birth  of  a  child,  either  when  the  mother  herself  is  insured  or  when 
she  is  the  wife  of  an  insured  man.  In  addition  to  these,  other  bene- 
fits may  be  granted,  if  the  financial  condition  of  the  society  permits 
it.  The  benefits  are  decreased  when  the  person  is  in  arrears  with  his 
contribution,  when  he  is  under  age  and  not  married,  and  when  he 
is  past  50  at  the  time  of  becoming  insured. 

If  a  person  is  not  so  employed  as  to  become  a  regular  member, 
he  may  join  a  society  as  a  voluntary  contributor.  The  rate  at  which 
he  pays  is  determined  by  his  age  at  entrance.  Adequate  provision  is 
made  to  allow  the  transfer  of  a  member  from  the  voluntary  to  the 
employed  rate  and  vice  versa.  Since  there  is  no  contribution  from 
the  employer  in  the  case  of  a  voluntary  member,  this  amount  must,  be 
paid  by  the  member.  The  contribution  from  Parliament  is  the  same 
as  in  the  case  of  the  regular  member,  and  the  benefits  he  receives 
are  the  same. 

A  deposit  contributor  is  one  who  cannot  obtain  admission  to  an 
approved  society  either  as  an  employed  or  a  voluntary  contributor. 
He  deposits  his  savings  in  the  post  office  in  a  manner  similar  to  our 
Postal  Savings  Bank  system.  From  his  deposit,  after  it  is  subsi- 
dized by  Parliament,  the  proper  amount  is  deducted  to  entitle  him 
to  medical  and  sanatorium  benefits.  For  the  other  benefits  he  can 
merely  withdraw  the  remainder  of  his  subsidized  deposit. 

There  are  two  separate  organizations  for  the  administration  of 
benefits.  A  local  Health  Committee  is  established  for  each  county 
and  county  borough.  This  committee  in  conjunction  with  the  local 
authorities  already  existing  administers  the  medical  and  sanatorium 
benefits.  The  other  benefits  are  administered  by  approved  societies. 
The  reason  for  this  division  of  labor  is  that  Friendly  Societies,  hav- 
ing millions  of  members,  already  give  benefits  of  various  sorts.  It  is 
intended  not  to  interfere  with  the  other  activities  of  these  societies, 
but  to  have  them  establish  separate  branches  to  administer  the  re- 
maining health  insurance  benefits.    Any  society  which  does  this  may 


548  CURRENT  ECONOMIC  PROBLEMS 

become  an  approved  society,  provided  it  is  not  carried  on  for  profit 
and  is  subject  to  the  control  of  its  members.  The  approval  rests 
with  the  Insurance  Commissioners. 

Many  details  of  the  scheme  are  fully  set  forth  in  the  bill,  but 
many  others  are  left  to  the  Insurance  Commissioners.  Their  rules 
and  regulations  are,  of  course,  subject  to  the  approval  of  Parliament. 
Strange  as  this  delegation  of  legislative  power  seems,  there  is  little 
doubt  that  it  will  contribute  much  to  the  initial  success  of  the 
scheme.  The  commission  will  be  able  to  adapt  many  of  its  regula- 
tions to  exigencies  as  they  arise  and  thus  correct  at  once  many  of 
the  defects  which  are  bound  to  appear  upon  the  launching  of  this 
mighty  scheme. 

270.     Old-Age  Pensions  in  New  Zealand^^ 

BY  W.  P.  REBViiS 

Though  dire  poverty  in  New  Zealand  is  almost  confined  to  the 
aged,  to  disabled  workers,  to  deserted  wives  and  children,  still 
even  the  Fortunate  Isles  have  not  escaped  the  cause  of  pauperism. 
The  State  has  not  only  to  provide  hospitals,  but  also  to  furnish 
what  in  the  colonies  is  called  Charitable  Aid.  Even  under  a  liberal 
system  of  poor  relief  pauperism  is  keenly  felt  by  the  better  class 
of  the  aged  poor.  Hence  public  opinion  was  quite  ready  for  the 
proposal  of  an  Old  Age  Pension  Law. 

When  such  a  law  was  at  length  proposed,  opposition  to  it,  as 
expressed  in  the  debates,  seems  to  have  been  based  on  the  conten- 
tion that  it  was  likely  to  burden  the  colony  needlessly  and  increas- 
ingly sap  the  springs  of  self-reliance,  and  tax  the  thrifty  for  the 
benefit  of  the  improvident.  On  behalf  of  the  Act  supporters  dwelt 
with  considerable  force  upon  the  ups  and  downs  and  inevitable 
accidents  of  colonial  life.  They  pointed  out  that  in  New  Zealand, 
as  in  all  countries  occupied  in  growing  raw  materials  for  Europe, 
times  of  prosperity  are  invariably  followed  by  periods  of  contrac- 
tion and  depression,  when  the  savings  even  of  the  most  thrifty  of 
the  poorer  classes  may  be  inevitably  swallowed  up  in  struggling  with 
unemployment.  Much  stress  was  laid  upon  the  uncertainty  of  in- 
vestments into  which  work-people  are  constantly  tempted  to  put 
their  small  savings.  The  House  was  reminded  of  notorious  in- 
stances in  which  the  very  thrift  of  careful  workers  had  led  to  their 
ruin  by  exposing  them  to  the  calls  levied  by  the  liquidators  of  bank- 
rupt financial  companies  in  which  they  had  invested  their  money. 
Speakers  suggested  that  the  virtues  of  thrift  in  the  case  of  married 

^'Adapted  from  State  Experiments  in  Australia  and  New  Zealand,  243-281 
(1902). 


ECONOMIC  INSECURITY  549 

work-people  might  easily  be  exaggerated,  since  to  bring  up  a  half 
dozen  children  decently  required  a  breadwinner's  whole  earnings. 

The  act,  as  finally  passed,  is  not  universal.  Every  deserving 
old  man  and  old  woman  who  has  lived  in  the  colony  for  twenty- 
five  years  continuously  is  entitled  to  a  state  pension,  the  maximum 
of  which  is  £18  a  year.  But  the  proviso  and  conditions  with  which 
the  act  is  hedged  about  are  such  that  not  more  than  40  per  cent  of 
the  aged  are  at  all  likely  to  be  found  entitled  to  it.  Nor  did  those 
who  passed  the  act  intend  that  any  larger  proportion  should  be. 
The  full  ii8  is  paid  only  to  those  whose  yearly  income  from  all 
source  is  less  than  £34.  From  £34  to  £52,  £1  is  taken  off  for  every 
£1  of  income.  Old  women  have  exactly  the  same  title  to  the  pension 
as  old  men.  Applicants  must  not  have  been  absent  more  than  two 
years  altogether  from  New  Zealand  during  the  quarter  of  a  cen- 
tury preceding  the  application.  They  must  be  subjects  of  His 
Majesty,  and,  if  naturalized  subjects,  must  have  been  naturalized 
five  years.  The  would-be  pensioner,  moreover,  must  bring  evidence 
that  he  or  she  for  the  previous  five  years  has  led  a  sober  and  repu- 
table life,  and  is  of  good  moral  character:  A  pensioner  may  at  any 
time  forfeit  his  pension,  if  convicted  of  serious  crime,  or  if  proved 
to  be  leading  a  drunken,  riotous,  or  spendthrift  life. 

The  criticisms  which  have  been  brought  against  the  act  are: 
first,  that  it  permits  designing  persons  to  impose  on  the  govern- 
ment; second,  that  its  cost  is  too  heavy;  and  third,  that  it  dis- 
courages thrift.  Opponents  of  the  policy  have  claimed  that  many 
of  the  pensioners  have  wasted  in  drink  money  that  they  should 
have  saved.  Another  complaint  has  been  that  children  wealthy 
enough  to  support  poor  parents  without  serious  inconvenience  have 
taken  advantage  of  the  Act  to  transfer  this  duty  to  the  State.  The 
case  has  been  cited  of  an  old  couple  divesting  themselves  of  their 
property,  deeding  it  to  a  daughter  who  is  married,  and  after  this 
applying  for  a  pension.  It  is  said  that  they  now  live  with  the 
daughter  on  the  land  that  was  their  own,  and  drive  in  a  pony- 
chaise  once  a  month  to  draw  the  money. 

The  cost  of  the  system,  two  hundred  thousand  pounds  a  year, 
is  a  substantial  burden.  But  times  are  very  good  in  New  Zealand 
just  now,  and  a  prosperous  colony  with  a  growing  revenue  can 
afford  to  be  bold. 

On  the  vexed  question  of  the  effect  of  free  pensions  upon  thrift 
among  the  poor,  it  may  be  pointed  out  that  no  contributory  scheme 
is  perfect.  This  act  certainly  does  not  offer  any  direct  and  specific 
encouragement  to  thrift.  Yet,  so  meager  an  allowance  as  a  shil- 
ling a  day  deferred  to  an  age  which  most  people  do  not  reach. 


550  CURRENT  ECONOMIC  PROBLEMS 

scarcely  offers  an  inducement  likely  to  interfere  with  the  dai'y 
habits  and  plan  of  life  of  the  very  poor.  People  who  were  thrifty 
before  are  not  likely  to  be  unthrifty  now.  And,  among  the  lowest 
grade  of  wage-earners,  it  is  questionable  whether  thrift  is  a  virtue 
or  not.  Certainly  it  would  be  easier  to  teach  this  class  to  spend 
wisely  than  to  teach  it  to  save.  Defects  the  Act  probably  has,  but 
they  are  not  its  essence.    It  has  come  to  stay. 

E.     THE  STANDARD  OF  LIVING 

271.     The  Nature  of  the  Standard  of  Living^^ 

BY  Frank  hatch  streightoff 

"How  can  these  people  endure  it  ?"  asked  the  fair  boarder,  clos- 
ing her  novel  and  languidly  sinking  into  the  depths  of  her  hammock. 
"Mr.  Farmer  drudges  from  four  a.  m.  till  dark,  and  never  a  visible 
result !  He's  never  been  to  the  theater !  Why,  he  hasn't  even  read 
T'he  Balance  of  Pozver.  I  don't  call  that  living — it  may  be  existing." 
Such  words  are  heard  eve.ry  day  in  rural  summer  resorts.  Corre- 
sponding sentiments  are  entertained  by  many  a  farmer  who  cannot 
see  how  his  guests  are  held  by  the  chaotic  buzz  of  the  metropolis. 
The  people  of  one  city  block  "couldn't  be  hired"  to  move  to  certain 
other  squares;  yet  the  respectable  inhabitants  of  these  latter  dis- 
tricts "wouldn't  be  buried  from  Z. Street."  It  is  really  amusing  to 
notice  how  the  words  "live"  and  "exist"  are  contrasted,  but  the  dis- 
tinction is  merely  the  expression  of  the  fact  that  "consciously  or  un- 
consciously every  man  whose  means,  or  wealth,  or  resources  are 
more  limited  than  this  wants — and  this  is  practically  the  case  with 
human  beings  generally — has  a  scale  of  wants  in  his  mind  when  he 
arranges  these  means.  On  the  basis  of  this  scale  he  satisfies  what  are 
his  most  urgent  wants  and  leaves  the  less  urgent  ones  unsatisfied."^' 
In  other  words,  every  man  has  his  own  "standard  of  living." 

Satisfactorily  to  define  the  standard  of  living  is  extremely  diffi- 
cult. Bullock  writes,  "Each  class  of  people  in  any  society  is  accus- 
tomed to  enjoy  a  greater  or  less  amount  of  the  comforts  or  luxuries 
of  life.  The  amount  of  comforts  or  luxuries  customarily  enjoyed 
forms  the  standard  of  living  of  that  class."^^  That  is  to  say,  the 
standard  of  living,  as  the  expression  is  usually  understood,  consists 
simply  of  what  men  do  actually  enjoy.  On  the  other  hand  there 
are  always  felt  but  unsated  wants  that  prompt  men  to  struggle; 

"Adapted  from  The  Standard  of  Living  among  the  Industrial  People  of 
America,  1-4.    Copyright  by  Hart,  Schaffner  &  Marx  (1911). 
^*Smart,  Introduction  to  the  Theory  of  Value,  22. 
^"Introduction  to  the  Study  of  Economics,  126. 


ECONOMIC  INSECURITY  551 

these  reasonable  unfilled  desires  are  the  motive  powers  to  progress. 
Few  indeed  are  the  women  who  do  not  confidently  whisper  to  their 
friends,  "We  cannot  do  that  now,  for  we  are  rather  poor  this  year." 
There  is  an  "ideal"  standard  of  living  which  is  always  ^in  advance 
of  achieved  satisfaction. 

The  definition  given  here  is  valuable  in  suggesting  two  impor- 
tant truths.  First,  it  properly  emphasizes  comforts  and  luxuries.  In 
everyday  affairs  effort  is  often  directed  more  to  securing  superflu- 
ities than  in  providing  necessities.  In  the  second  place,  the  extent 
and  content  of  the  unsated  wants  in  a  man's  ideal  standard  is  largely 
determined  by  actual  satisfactions. 

Each  individual  has  his  own  more  or  less  rational  concept  of 
what  is  essential  to  the  maintenance  of  his  own  social  position ;  and 
he  knows  exactly  what  this  position  is,  whether  he  be  the  bank  clerk 
who  delights  in  race  horses,  or  the  man  who  shares  the  same  desk 
and  plays  on  the  Sunday-school  ball  team.  The  one  demands 
"smart"  raiment  and  amusement  at  highly  nervous  tension,  the  other 
wants  respectable,  serviceable  clothes  and  healthy  sport.  They  live 
in  different  worlds,  they  have  individual  criteria :  so  each  man  has 
his  own  standard  of  living.  But  it  will  be  noted  that  bank  clerks  as 
a  class  have  some  wants  in  contrast  to  the  mechanics,  for  instance. 
The  clerks  must  enter  their  offices  clean-shaven,  the  mechanics  like 
a  good  scrub  after  work;  the  former  wear  kid  gloves  and  fresh 
linen,  the  latter  are  more  comfortable  in  woolen  gloves  and  flannel 
shirts.  These  contrasts  and  comparisons  can  be  extended  until  the 
standard  of  each  group  can  be  determined  with  considerable  pre- 
cision. Thus  the  class  standard  of  living  may  be  compared  to  a 
composite  photograph ;  certain  features  are  emphasized,  while  others 
are  faint  or  blurred  according  to  the  proportion  of  the  individuals 
possessing  the  character.  On  the  other  hand,  development  of  the 
individual  is  so  largely  influenced  by  his  environment  that  his  notions 
are,  in  the  main,  those  of  his  class. 

But  class  is  not  the  only  factor  in  the  development  of  the  indi- 
vidual's ideal  standard  of  living.  Aside  from  its  large  determining 
influence  in  the  matter  of  class  membership,  income  has  an  import- 
ant part  to  play;  purchasing  power  limits  the  quantity  and  quality 
of  obtainable  satisfactions.  The  higher  the  individual  climbs  on  the 
ladder  of  success,  the  wider  is  his  view ;  the  more  he  sees,  the  more 
he  seeks. 

Another  determinant  of  the  standard  of  living  is  the  progress  of 
civilization.  The  modern  carpenter  has  far  more  comfort  than 
Richard  II  dreamed  of,  simply  because  progress  has  put  new  things 
within  his  reach,  but  the  carpenter  knows  that  there  are  many,  many 


552  CURRENT  ECONOMIC  PROBLEMS 

things  which  he  cannot  have.  Thus  there  is  a  constant,  though  ir- 
regular rise  of  the  standard  of  Hving  as  civiHzation  becomes  more 
complex. 

272,    A  Wage-Earner's  Budget^" 

BY   LOUISE   BOLAND    MORE 

This  household  consists  of  father  and  mother,  both  born  in  Ire- 
land, and  two  boys,  8  and  9  years  of  age.  The  man  is  a  steady,  tem- 
perate, unskilled  laborer.  Neither  Mr.  nor  Mrs.  R.  have  known  any 
higher  plane  of  living  than  their  present  surroundings ;  both  are 
uneducated,  but  the  woman  especially  possesses  considerable  native 
thrift  and  intelligence.  This  family  is  representative  of  the  average 
family  of  this  size  on  a  fairly  steady  income  of  $12  a  week,  with  no 
drink,  sickness,  or  unusual  conditions  to  make  it  abnormal.  The 
man  was  out  of  work  for  six  weeks  in  the  year,  but  that  is  not  un- 
usual. The  woman  is  neat,  honest,  and  reliable,  and  tries  hard  "to 
get  ahead."  For  three  months  the  man  had  night  work  as  stable- 
man at  $13  a  week.  The  family  has  never  been  dependent,  but 
while  the  man  was  out  of  work  a  sister  gave  them  $25  as  a  present, 
and  they  were  obliged  to  draw  $10  from  the  little  which  they  had 
saved  in  the  bank.    The  total  income  for  the  year  was : 

Mr.  R. :  33  wks.  at  $12.00 

"       13  wks.  at  13.00 $565.00 

Drew   from   Bank    10.00 

Gift  from  sister  25.00 

Total $600.00 

The  estimated  expenditures  were  as  follows : 
Rent — 2  mos.  at  $10.00,  7  mos.  at  $12.00,  3  mos.  at  $11.00.  .$137.00 

Food — From  $4.00  to  $7.00  a  week 277.00 

Drink — (pint  of  beer  at  supper  daily) 36.40 

Clothing   40.00 

Light  and  fuel   52.00 

Insurance  from  50  to  75  cents  a  week 29.25 

Papers,  1 1  cents  a  week 5.72 

Church,  35  cents  a  week  (for  50  weeks) i7-50 

Man's    spending-money    25.00 

Sundries    2.63 

Total    $622.50 

Deficit    22.50 

This  deficit  consisted  of  bills  owing  to  the  butcher  and  grocer 
amounting  to  $10,  back  insurance  payments  equal  to  $2.50,  and 
clothing  bought  "on  time"  on  which  $10  was  still  unpaid.  The  rent 
varied  because  the  family  had  moved  twice  in  the  year,  looking  for 

'"Adapted  from  Wage-Earners'  Budgets,  163-167.  Copyright  by  Henry 
Holt  &  Co.  (1Q07). 


ECONOMIC  INSECURITY  553 

cheaper  rent.  The  last  rooms,  for  which  they  paid  $10  a  montli 
rent,  were  three  dark,  small  rooms.  The  light  of  the  "parlor''  at  the 
back  of  the  tenement  was  almost  shut  off  by  a  large  factory  built 
close  to  it.  The  windows  in  the  kitchen  and  bedroom  opened  on  an 
air-shaft.  The  rooms,  however,  were  very  neat,  lace-curtains  at  the 
windows,  plush  furniture,  pictures  of  the  family,  carpet  on  the  floor, 
and  all  the  bric-a-brac  usual  in  homes  of  this  class.  There  was  a 
white  iron  bed  in  the  bedroom,  with  the  customary  folding-bed  for 
the  children. 

The  expenditure  for  food  varied  greatly.  A  budget  kept  for  a 
week  showed  $7  spent  for  food,  but  Mrs.  R.  said  they  could  only 
spend  that  much  w-hen  the  man  was  working  steadily  or  when  there 
was  no  rent  to  pay.  The  weeks  in  which  semi-monthly  payments  of 
rent  were  made,  the  food  allowance  was  cut  down  to  about  $4  a 
week.  Whenever  there  was  any  unusual  expense  the  food  suffered. 
During  the  six  weeks  the  man  was  not  working  they  did  not  spend 
more  than  $4.50  a  week  for  food.  This  is  an  illustration  of  a  very 
common  condition  among  wage-earners  and  is  due  to  the  fact  that, 
on  the  prevailing  rate  of  unskilled  wages,  it  is  difficult  if  not  impos- 
sible for  a  family  to  prepare  for  such  emergencies.  Mrs.  R.  esti- 
mated that  $277  had  been  spent  for  food  in  the  year,  making  these 
allowances,  and  that  the  average  per  week  would  be  about  $5.33. 
On  the  whole,  the  food  was  adequate  and  wholesome,  and  the  entire 
family  appeared  to  be  in  good  condition.  They  had  no  illness  dur- 
ing the  year. 

The  standard  of  dress  is  classed  as  "medium."  They  had  few 
clothes,  but  took  good  care  of  them.  The  father  had  plain  working- 
clothes,  the  mother  always  wore  wrappers  at  home,  and  only  had 
one  street  dress,  as  she  never  went  anywhere  except  to  church.  The 
boys  were  neat  and  clean.  Mrs.  R.  bought  clothing  "on  time" — she 
was  ashamed  of  it,  but  said  the  boys  could  not  have  new  suits  for 
Easter  unless  she  did.  She  itemized  the  expenditures  for  clothing 
for  the  year  as  follows : 

Man,  I  pair  shoes $  2.(X) 

Woman,  i  pair  shoes  1.25 

Two  boys :  2   suits 7.00 

2  overcoats    11.00 

4  pairs  shoes  at  75  cts., 

4  pairs  at  69  cts 5.76 

Mending  shoes    2.80 

2    pairs    pants,    $1.00;  4    sets    under- 
wear $1.60 2.60 

4  ^hirt- waists ;  2  at  50c  and  2  at  30c. ...     1.60 

4   caps    70 

Miscellaneous    5.29 

Total    $40.00 


554  CURRENT  ECONOMIC  PROBLEMS 

Mrs.  R.  cannot  sew,  and  buys  all  their  clothes  ready-made  of  a 
cheap  quality,  but  the  little  boys  are  not  hard  on  their  clothes.  Her 
sister  knits  stockings  for  the  entire  family. 

The  expenditure  for  coal  and  gas  and  oil  was  rather  high,  owing 
to  the  dark  rooms.  Coal  was  bought  by  the  bushel,  and  the  man 
brought  home  wood  free  for  kindling.  Gas  was  burned  in  two 
places  where  they  lived,  and  the  gas-bills  for  nine  months  amounted 
to  $11.20.  In  all,  coal  cost  $37.75  (at  $  .25  a  bushel),  and  oil  for 
three  months  about  $3.05 — total  $52. 

This  family  did  not  spend  one  cent  for  recreation,  except  what 
the  father  had  out  of  his  "spending-money."  This  was  very  little,  for 
while  he  was  earning  $12  a  week  his  wife  gave  him  not  more  than 
$  .40  a  week  and  often  only  $  .25  ($  .15  for  tobacco  and  $  .10  for 
a  shave),  but  when  he  earned  $13  a  week  (for  3  months)  he  kept 
out  a  dollar  a  week  for  "spending-money."  His  allowance  for  the 
entire  year  would  not  exceed  $25.  He  gave  all  the  rest  to  Mrs.  R., 
who  said  he  was  a  "model  husband."  They  are  very  religious  and  go 
to  the  Catholic  Church  every  Sunday,  only  missing  two  Sundays  in 
the  year.  They  pay  10  cents  each  for  a  seat,  put  10  cents  in  the  col- 
lection, and  give  the  boys  2  or  3  pennies  for  the  collection,  making 
a  total  of  $  .35  a  Sunday. 

They  were  all  insured  for  $  .50  a  week,  $  .15  for  the  man,  $  .15 
for  the  woman,  and  $  .10  each  for  the  boys,  until  the  man's  wages 
were  raised  to  $13,  when  his  wife  raised  his  insurance  policy  and 
paid  $  .40  a  week  for  him.  This  extra  amount  was  more  than  they 
could  afford  to  pay,  for  in  those  13  weeks  they  dropped  behind  $2.50 
on  the  insurance  payments. 

The  only  reading  is  the  penny  papers.  The  boys  are  sent  to  the 
parochial  school,  and  the  parents  are  very  ambitious  for  them.  Un- 
less sickness  or  unemployment  comes,  this  family  will  be  able  to 
make  up  the  deficit  of  $22.50  on  the  man's  wages  of  $13  a  week, 
but  it  is  very  evident  from  a  study  of  these  expenditures  that  it  wil' 
be  impossible  to  save  any  considerable  sum  for  the  future. 

273.     Life  at  $1.65  a  Day" 

BY  MARGARET  P.  BYINGTON 

Let  US  consider  how  the  economic  problem  of  life  can  be  worked 
out  on  $1.65  a  day. 

With  the  single  men  the  problem  is,  of  course,  a  simple  one. 
Many  care  little  how  they  live  so  long  as  they  live  cheaply.  One  of 
the  lodging-houses  which  I  visited  consisted  of  two  rooms  one  above 
the  other,  each  measuring  perhaps  12  by  20  feet.     In  the  kitchen 

"Adapted  from  Homestead;  the  Households  of  a  Mill  Town,  138-143. 
Copyright  by  the  Russell  Sage  Foundation  (1910). 


ECONOMIC  INSECURITY  555 

was  the  wife  of  the  "boarding  boss"  getting  dinner — some  sort  of 
hot  apple  cake  and  a  stew  of  the  cheapest  cuts  of  meats.  Along  one 
side  of  the  room  was  an  oilcloth-covered  table  with  a  plank  bench 
on  each  side ;  above  it  a  rack  holding  a  long  row  of  handleless  white 
cups  and  a  shelf  with  tin  knives  and  forks.  Near  the  up-to-date 
range,  the  only  piece  of  real  furniture  in  the  room,  hung  the  "buck- 
ets" in  which  all  mill  men  carr\'  their  noon  or  midnight  meals.  In 
the  room  above,  double  iron  bedsteads  were  set  close  together  and 
on  them  comfortables  were  neatly  laid.  In  these  two  rooms,  beside 
the  "boarding  boss,"  a  stalwart  Bulgarian,  his  wife,  and  two  babies, 
lived  20  men. 

The  "boarding  boss"  runs  the  house  and  the  men  pay  $3.00  a 
month  for  a  place  to  sleep,  for  having  their  clothes  washed,  and 
their  food  cooked.  In  addition,  an  account  is  kept  of  the  food  pur- 
chased and  the  total  is  divided  among  the  men  on  pay  day.  The 
housewife  also  purchases  and  cooks  any  special  food  a  man  orders; 
beef,  pork,  lamb,  each  with  a  tag  of  some  sort  labeling  the  order, 
will  all  be  fried  together.  A  separate  statement  for  each  boarder 
is  kept  of  these  expenses. 

Such  an  account  for  a  group  of  men  in  a  small  Slavic  household 
may  prove  of  interest.  The  family,  consisting  of  a  man,  his  wife, 
his  brother,  three  children,  and  four  boarders  occupied  a  house  of 
four  rooms,  for  which  they  paid  a  rent  of  $14.00.  The  man  earned 
only  $10.80  a  week  with  which  to  meet  the  needs  of  a  growing  fam- 
ily. One-half  the  cost  of  the  food  was  paid  by  the  boarders,  includ- 
ing the  brother,  and  amounted  for  each  man  to  about  $1.06  a  week. 
The  expenditures  for  the  week  were:  vegetables,  $1.06;  fruit,  $0.56; 
milk,  eggs,  etc.,  $1.98 ;  sugar,  $0.49 ;  sundries,  $0.76 ;  and  meat,  $5.78, 
making  a  total  of  $10.63.  Beef,  pork,  veal,  eggs,  milk,  cheese,  and 
fruit  were  ordered  as  "extras"  by  the  five  boarders  in  varying  pro- 
portions.   Upon  these  each  spent  from  $3.00  to  $4.00. 

The  average  expense  for  each  man  including  his  share  of  the 
general  sum,  together  with  the  amount  spent  individually,  was 
about  $8.02  a  month.  Adding  $3.00  a  month  for  room  and  wash- 
ing, the  total  expense  to  each  was  about  $11.00  a  month.  In  pros- 
perous times  these  men  make  from  $9.90  to  $12.00  a  week.  It  is 
obvious,  therefore,  that  if  the  fixed  expenditure  of  these  single 
men  is  less  than  $3.00  a  week,  a  large  margin  remains  over  and 
above  clothes  for  saving  or  indulgence.  They  can  thus  send  for 
wife  and  children,  fulfil  their  duties  to  aged  parents,  live  high  ac- 
cording to  their  lights,  or  make  provision  for  their  own  future. 

But  nearly  half  of  the  men  employed  in  the  mill  have  families 
to  support,  usually  on  the  same  wage.     How  does  the  other  half 


556  CURRENT  ECONOMIC  PROBLEMS 

live?  Let  us  take  the  average  expenditure  of  ten  Slavic  budget 
families  without  boarders,  earning  less  than  $12.00  a  week,  whose 
total  average  expenditure  was  $10.03  ^  week,  13  cents  above  the 
usual  day  laborer's  regular  wage  of  $9.90.  The  figures  are  as  fol- 
lows:  Food,  $4.68;  rent,  $1.62;  fuel,  $0.27;  clothing,  $1.57;  other 
housekeeping  expenses,  $0.13;  tobacco,  $0.07;  liquor,  $0.55;  insur- 
ance, $0.77;  other  expenses,  $0.41. 

This  distribution  of  expenses  is  fairly  representative  of  the 
amount  of  money  the  Slavs  can  count  on  unless  they  work  overtime 
or  take  in  lodgers.  The  $1.62  a  week  for  rent  provides  only  for  a 
one-  or  two-room  tenement,  two  rooms  in  one  of  the  undesirable 
houses  costing  $8.00  a  month.  With  an  average  expenditure  in  this 
group  of  $4.64  a  week,  the  cost  of  food  for  the  average  family 
would  equal  20  cents  a  day  per  grown  man,  2  cents  a  day  less  than 
the  estimate  for  essentials. 

To  show  the  food  value  of  their  provisions,  we  must  rely  upon 
the  statement  of  the  average  expenditure  of  one  family,  including 
man,  his  wife,  and  three  children,  twelve,  three  and  nine  months 
old.  The  family  was  dependent  on  the  man's  earnings  of  $9.90  a 
week.  The  food  expenditures  for  a  week  were :  bread,  $0.75 ; 
baker's  food,  $0.03;  meat,  $1.46;  flour,  $0.26;  potatoes,  $0.25 ;  other 
vegetables,  $0.09 ;  dried  beans,  $0.06 ;  eggs,  $0.24 ;  milk,  $0. 1 1 ;  but- 
ter, $0.38;  cheese,  $0.05;  fresh,  fruit,  $0.13;  sugar,  $0.14;  tea,  $0.08; 
coffee,  $0.76;  and  sundries,  $0.40.  The  total  is  $5.19,  making  an 
average  of  $0.74  a  day.  This  is  $0.23  a  day  on  a  grown-man-unit 
basis. 

The  nutritive  value  of  the  food  was  probably  a  little  below  the 
requisite  amount.  In  all  probability  these  Slavic  women  are  not 
skillful  buyers — the  accounts  consist  of  a  rather  monotonous  iter- 
ation of  "bread,  meat — bread,  meat"  that  does  not  promise  an  in- 
spiring diet.  The  expenditure  for  clothing  among  the  ten  families 
was  below  what  is  estimated  as  essential.  No  money  was  expended 
for  furniture;  a  fact  borne  out  by  the  utter  bareness  of  the  two- 
room  houses  of  many  of  the  laborers.  With  the  exception  of  insur- 
ance and  comparatively  high  expenditure  for  liquor,  these  figures 
indicate  that  life  measured  in  terms  of  possessions  is  at  a  low  ebb 
among  the  Slavic  laborers.  And  what  has  become  of  the  margin 
which  was  to  make  possible  the  attainment  of  that  old-country  am- 
bition, a  bit  of  property  and  a  bank  account?  Somie  other  means 
must  be  found  to  achieve  these  ends. 

That  device  is  to  take  in  lodgers.  The  income  from  this  source 
is  no  mean  item.  Of  102  families  investigated,  three-quarters 
received  from  lodgers  a  sum  at  least  equal  to  the  rent,  while  a 


ECONOMIC  INSECURITY  557 

fifth  received  twice  the  amount  of  the  rent  or  more.  A  glance  at  the 
sources  of  incomes  of  the  famiHes  suggests  that  among  the  Slavs 
themselves  the  wages  of  an  unskilled  laborer  are  considered  insuffi- 
cient to  support  a  family,  even  according  to  very  low  standards. 

274.     A  "Fair  Living  Wage"" 

BY   LOUISE   BOLAND   MORE 

What,  then,*is  a  "fair  living  wage"  for  an  average  family  ?  The 
Massachusetts  Bureau  of  Statistics  puts  it  at  $724  a  year  for  a  family 
of  five ;  the  New  York  Bureau  of  Labor  at  $520 ;  Mr.  John  Mitchell, 
President  of  the  United  Mine  Workers  of  America,  at  $600;  Mr. 
Robert  Hunter,  author  of  "Poverty,"  says  $460  (for  actual  and 
necessary  expenses)  ;  and  Dr.  Edward  T.  Devine,  Secretary  of  the 
Charity  Organization  of  New  York  City,  estimates  $600  as  a  mini- 
mtun.  These  estimates  were  all  made  at  periods  of  lower  prices 
and  cost  of  living  than  the  present  (1906). 

A  "fair  living  wage"  should  be  large  enough  not  only  to  cover 
expenses  which  Mr.  Rowntree  calls  "necessary  for  maintaining 
merely  physical  efficiency,"  but  it  should  allow  for  some  recreation 
and  a  few  pleasures,  for  sickness,  short  periods  of  unemplo)mient, 
and  some  provision  for  the  future  in  the  form  of  savings,  insur- 
ance, or  membership  in  benefit  societies. 

The  whole  question  of  a  fair  wage  depends  primarily  on  the 
amount  and  cost  of  food  necessary  for  proper  nutrition.  If  a  man 
is  underfed,  he  must  underwork,  as  Mr.  Rowntree  says ;  his  children 
are  stunted  in  growth  and  intellect,  and  when  a  man  is  unfit  for 
work  he  fails  to  get  it  or  works  for  the  lowest  wages.  Mr.  Rown- 
tree adds :  "The  most  hopeless  condition  of  the  poor,  as  every-^  social 
worker  knows,  is  unfitness  for  work.  Unfitness  for  work  means  low 
wages,  low  wages  means  insufficient  food,  insufficient  food  means 
unfitness  for  labor,  and  so  the  vicious  circle  is  complete." 

This  investigation  has  shown  that  a  well-nourished  family  of 
five  in  a  city  neighborhood  needed  at  least  $6  a  week  for  food. 
The  average  for  39  families,  having  five  in  the  family,  was 
$327.24  a  year  for  food.  If  we  consider  $6  a  week  (or  $312  a 
year)  as  43.4  per  cent  of  the  total  expenditure  (which  was  the 
average  percentage  expended  for  food  in  these  200  families,  and 
very  near  the  average  for  the  workingmen's  families  in  the  exten- 
sive investigation  of  the  Department  of  Labor),  the  total  expendi- 
ture would  be  about  $720  a  year.  It  therefore  seems  a  conservative 
conclusion  to  draw  from  this  study  that  a  "fair  living  wage"  for 
a  workingman's  family  of  average  size  in  New  York  City  should  be 

•'Adapted  from  Wage-Earners^  Budgets,  268-270.  Copyright  by  Henry 
Holt  &  Co.  (1907). 


558  CURRENT  ECONOMIC  PROBLEMS 

at  least  $728  a  year,  or  a  steady  income  of  $14  a  week.  Making 
allowance  for  a  larger  proportion  of  surplus  than  was  found  in 
these  families,  which  is  necessary  to  provide  adequately  for  the 
future,  the  income  should  be  somewhat  larger  than  this, — this  is, 
from  $800  to  $900  a  year. 


F.     THE  MINIMUM  WAGE 
275.     The  Promise  of  a  Minimum  Wage^^ 

BY  A.  N.  HOLCOMBE 

The  immediate  direct  effect  of  the  establishment  of  a  minimum 
standard-of-living  wage  would  be  to  put  an  end  to  the  employ- 
ment of  normal  adult  workers  at  lower  rates.  Not  every  wage- 
worker  who  has  been  employed  at  lower  rates  would  necessarily 
be  deprived  of  employment,  nor  would  the  wage  of  every  such 
wage-earner  necessarily  be  increased  to  the  standard  minimum  rate. 
Some  employees  would  receive  the  increase,  and  some  would  lose 
their  employment.  The  actual  effect  would  depend  partly  upon  the 
efficiency  of  the  wage-earners  concerned,  and  partly  upon  the  char- 
acter of  the  demand  for  their  services.  In  industries  like  depart- 
ment stores  and  steam  laundries,  which  serve  local  markets  and  are 
free  from  outside  competition,  probably  the  increase  of  wages  could 
be  paid  to  all  employees  below  the  minimum  without  so  increasing 
the  cost  of  production  as  to  produce  a  material  decline  in  the  de- 
mand. But  in  industries  serving  a  wider  market  and  subject  to  out- 
side competition,  such  as  cotton  mills  and  shoe  factories,  the  estab- 
lishment of  a  legal  minimum  wage  might  reduce  employment  rather 
than  increase  wages.  The  outcome  would  depend  largely  upon  the 
extent  of  the  necessary  increase  and  the  rapidity  with  which  it 
should  be  put  in  force.  Some  sweated  industries  might  be  alto- 
gether incapable  of  maintaining  themselves.  But  such  as-  these  the 
country  would  be  better  without. 

The  greatest  difficulty  arises  in  the  cases  where  work-people  of 
,  distinctly  differ-ent  standards  of  living  come  into  competition  with 
one  another.  Unless  the  groups  are  of  equal  efficiency,  the  attempt 
to  establish  a  single  standard  for  all  might  result  in  securing  the 
industry  to  the  most  efficient  group  and  excluding  the  others  from 
all  employment  therein.  To  attempt  to  establish  an  American  stand- 
ard-of-living wage  for  alien  races  of  distinctly  lower  standards  and 
lower  efficiency  would  probably  result  in  the  exclusion  of  many 
aliens  froni  employment  in  the  country.  It  would  also  result  in  the 
exclusion  of  most  of  the  negroes  from  the  occupations  in  which  the 

■'Adapted  from  an  article  in  the  American  Economic  Review,  II,  33-37- 
Copyright   (1912). 


ECONOMIC  INSECURITY  559 

wage  should  be  adjusted  to  the  efficiency  of  the  native  whites.  A 
legal  minimum  wage  would  probably  be  of  advantage  in  promoting 
a  better  distribution  of  such  immigrants  among  our  various 
industries. 

The  indirect  economic  effects  of  the  establishment  of  a  minimum 
standard-of-living  wage  may  be  mentioned  summarily. 

First,  the  establishment  by  legislation  of  such  a  w^age  would 
make  available  to  the  poorest  and  most  helpless  of  the  laboring 
population  a  share  in  the  advantages  obtained  by  the  better-to-do 
and  stronger  through  voluntary  association.  An  advantage  would 
be  the  greater  security  for  the  protection  of  the  interests  of  the 
pubHc  against  the  abuse  of  irresponsible  power  in  .the  interests  of 
special  classes. 

Secondly,  the  line  would  be  more  sharply  drawn  between  the 
unemployable  and  the  merely  unemployed.  It  would  also  tend  to 
restrict  the  influx  of  the  unemployable  from  abroad,  thus  at  once 
checking  the  increase  of  inferior  labor  and  raising  the  average 
efficiency  of  the  domestic  supply. 

Thirdly,  there  would  result  a  restriction  of  the  field  of  competi- 
tion between  workpeople.  The  wage-earner  whose  chief  recom- 
mendation is  his  willingness  to  work  for  a  pittance  would  lose  the 
advantage  of  his  submissiveness,  and  skill  and  strength  would 
become  of  greater  importance  in  obtaining  employment. 

Fourthly,  there  would  result  a  restriction  of  the  field  of  com- 
petition between  employers.  The  employer  whose  chief  stock  in 
trade  is  his  shrewdness  in  driving  hard  bargains  would  lose  his 
advantage.  The  peculiar  qualities  of  the  best  type  of  business  men 
would  be  of  greater  importance  in  the  achievement  of  success. 

276.    The  Case  for  Wage-Boards^* 

BY  CONSTANCE  SMITH 

Many  of  the  objections  ordinarily  advanced  against  Wages 
Boards,  or,  indeed,  against  any  proposal  to  regulate  wages,  are 
little  more  than  a  re-statement  of  the  arguments  employed  to  defeat 
the  passing  of  the  earlier  Factory  Acts.  They  rely  for  support  on 
the  principle,  more  or  less  disguised,  of  laissez  faire.  But  there 
are  some,  more  strictly  addressed  to  the  practical  proposal  now 
before  the  country,  to  which  it  seems  desirable  to  give  such  brief 
consideration  as  space  permits. 

"Adapted  from  The  Case  for  Wages  Boards,  75-86.  Published  by  the 
National  Anti-Sweating  League,  London  (1911). 


56o  CURRENT  ECONOMIC  PROBLEMS 

First,  there  is  the  fear  frequently  expressed,  that  Wages  Boards 
would  increase  unemployment,  by  pushing  out  of  the  labor  market 
the  less  competent  worker,  who  is  unfit  to  earn  even  the  minimum 
rate,  and  by  giving  the  coup  de  grace  to  weak  and  tottering  indus- 
tries. The  existing  Wages  Boards  legislation  of  Victoria,  makes 
special  provision  for  the  case  of  the  old  and  slow  worker.  But 
granted  that  there  are  individuals  of  this  class  who  will  be  unable, 
under  the  new  conditions,  to  find  employment,  even  at  special  rates, 
there  still  remains  the  question  whether  it  is  not  wiser,  on  purely 
economic  grounds,  to  face  boldly  the  necessity  of  maintaining  for  a 
while  a  certain  number  of  persons  physically  or  mentally  incapable  of 
fully  maintaining  themeslves,  rather  than  of  condemning  to  "half 
employment"  an  infinitely  greater  number  of  people  who,  given  a 
fair  chance,  are  perfectly  able  to  earn  their  own  living. 

But  sound  economists  who  have  carefully  studied  the  subject 
do  not  hold  that  under  a  Wages  Board  system  we  should  have  a 
"net"  reduction  of  employment.  Since  the  first  result  of  the  estab- 
lishment of  such  a  system  will  be  an  increased  wages  bill,  involving 
the  transference  of  a  fresh  portion  of  wealth  to  the  pockets  of 
certain  classes  of  workers,  there  must  at  once  follow  an  increased 
purchasing  power  on  the  part  of  those  workers  and  a  raising  of  the 
general  standard  of  consumption  in  the  community.  Workers  will 
not  only  buy  more,  but  better  articles,  and  this  movement  must  in- 
evitably tend  both  to  greater  volume  and  greater  regularity  of 
employment. 

With  regard  to  those  industries  which  are  so  deficient  in  capital 
or  in  organization  that  they  can  only  maintain  a  precarious  foot- 
hold in  the  competitive  area  by  under-payment  of  the  workers  they 
employ,  it  is  clear  that  the  community  would  be  better  off  for  their 
disappearance. 

Would  the  cost  of  production,  and  consequently  the  price  of  the 
article  to  the  consumer,  be  greatly  raised  by  the  establishment  of 
minimum  rates?-  Daily  experience  shows  that,  in  a  considerable 
number  of  industries,  there  is  a  margin  which  could  safely  be  drawn 
upon  for  the  levelling-up  purposes  of  a  minimum  rate.  Cases  are 
not  infrequently  found,  for  instance,  in  trades  employing  women's 
labour  at  a  sweated  wage,  where  vigorous  representation  on  behalf 
of  the  workers,  acting  upon  a  wholesome  fear  of  publicity  on  the 
part  of  the  employing  firm,  has  produced  a  considerable  increase, 
amounting  on  occasion  to  something  like  a  doubling  of  the  rate  of 
pay.  It  must  be  remembered,  further,  that  the  cash  margin  is  not 
the  only  one  at  the  disposal  of  employers  of  labour.  Human  nature 
is  lazy,  and  most  people  need  some  stimulus  to  enterprise.     The 


ECONOMIC  INSECURITY  561 

economy  which  is  now  too  often  effected  by  taking  a  penny  or  a 
halfpenny  off  the  wages  of  the  employes,  would,  were  that  method 
made  impracticable  by  a  Wages  Board  Determination,  be  otherwise 
contrived;  by  the  introduction  of  improved  machinery,  by  better 
organization,  by  checking  the  reckless  waste  which,  where  a  vast 
quantity  of  very  cheap  articles  are  made  by  indifferent  workers 
labouring  desperately  against  time,  swallows  up  a  considerable 
amount  of  profit  every  year,  and  by  abolition  of  the  ruinous  prac- 
tice of  selling  under  cost  price  in  the  case  of  certain  of  the  articles 
manufactured,  in  order  to  make  a  market  for  the  rest.  Further,  all 
industrial  experience  teaches  that  with  the  improvement  of  the 
workman  comes  improvement  also  in  his  work,  even  where  this  is 
highly  specialized.  Nor  is  cost  of  production  necessarily  lowest 
where  the  wages  are  low  and  the  hours  long. 

Apprehension  is  often  expressed  lest  the  minimum  wage,  once 
established  in  an  industry,  should  become  the  maximum  in  that  in- 
dustry ;  and  assertions  that  this  actually  occurs  have  not  been  want- 
ing. Again,  there  is  much  testimony  from  Victoria  to  support  the 
contrary  view.  Opening,  almost  at  haphazard,  the  latest  Report  of 
the  Victorian  Chief  Inspector  of  Factories,  we  find,  under  the 
heading  of  the  Aerated  Water  Trade  Board,  "The  Determination  is 
well  complied  with,  the  wages  of  many  of  the  men  and  boys  being 
above  the  minimum."  A  similar  state  of  things  is  found  to  obtain 
at  home  in  industries  where  minimum  rates  have  been  fixed  by 
means  of  collective  bargaining  or  arbitration  under  the  Board  of 
Trade.  Here,  too,  the  more  skilled,  industrious,  and  capable  worker 
is  able  to  earn  a  higher  wage  than  that  calculated  on  the  average" 
capacity  of  the  average  man  or  woman. 

The  last  objection  to  be  considered  is  what  may  be  called  the 
moral  objection.  Many  of  those  who  have  not  been  brought  into 
personal  contact  with  sweated  workers,  and  with  the  conditions 
under  which  sweated  industry  is  carried  on,  deprecate  the  setting  up 
of  any  machinery  which  appears  to  limit  the  opportunity  for  free 
bargaining  between  employer  and  employed.  They  are  afraid  that 
such  machinery  may  destroy  the  spirit  of  enterprise,  and  that  the 
assumption  of  responsibihty  in  the  matter  of  wages  by  the  State 
will  tend  to  weaken  the  personal  relation  between  masters  and  men. 
To  such  objectors  the  best  reply  is  an  invitation  to  study  the  situa- 
tion at  close  quarters  and  at  first  hand.  They  cannot  then  fail  to 
perceive  that  the  outstanding  features  in  the  present  position  of  the 
sweated  worker,  especially  when  that  worker  is  a  woman,  are 
absolute  inability  to  bargain  freely  and  total  lack  of  independence. 
Such  a  worker  must  take  the  work  offered,  at  any  terms  that  may  be 


562  CURRENT  ECONOMIC  PROBLEMS 

proposed,  under  penalty  of  an  immediate  drop  into  the  abyss  of 
destitution.  The  spirit  of  enterprise  is  rarely  found  to  animate  those 
who  are  working  excessive  hours  for  a  bare  pittance.  As  to  the 
"personal  relationship,"  it  is  useless  to  devise  schemes  for  preserv- 
ing it;  for  good  or  evil,  it  is  practically  a  thing  of  the  past.  More 
and  more,  industry  and  commerce,  like  battleships,  tend  towards  the 
"all  big"  type.  Everywhere,  the  business  that  was  formerly  the 
affair  of  an  individual  or  a  family  is  now  the  result  of  the  activities 
of  an  association  or  a  limited  company  acting  through  its  salaried 
servants. 

In  a  great  number  of  cases  the  employer  is  practically  powerless, 
even  now,  to  deal  personally  with  his  employees.  In  time  to  come, 
as  he  becomes  increasingly  the  instrument  of  great  impersonal  forces, 
financial  and  social,  behind  him,  all  capacity  for  such  individual 
dealing  will  be  taken  from  him.  It  is  only  by  accepting,  under  the 
sanction  of  the  State,  the  regulation  of  wages  in  those  industries 
where  it  has  hitherto  gone  unregulated,  with  such  results  in  the 
shape  of  economic  chaos  and  human  degradation  as  we  have  been 
considering,  that  the  best  employer  can  save  himself  from  being 
ultimately  dragged  down  to  the  level  of  the  worst.  For  him,  as  for 
his  workers,  an  Act  establishing  Wages  Boards  would  be  a  genuine 
measure  of  protection. 

277.    The  Progress  of  the  Minimum  Wage^° 

BY  FLORENCE  KElvLEY 

Minimum- wage  legislation  was  a  favorite  subject  throughout 
1913,  when  forty  legislatures  were  in  session,  and  state  commissions 
were  authorized  to  establish  wage  rates  in  Cahfornia,  Colorado, 
Minnesota,  Nebraska,  Oregon,  Washington,  and  Wisconsin.^^  Com- 
missions were  authorized  to  prosecute  inquiries  as  to  the  desir- 
ability of  such  legislation  or  as  to  the  living  wage  for  women  and 
minors  in  Illinois,  Indiana,  Ohio,  and  Connecticut.  In  1915,  New 
York,  Missouri,  and  Michigan  have  made  public  the  results  of  such 
inquiries. 

Utah  dispenses  outright  with  commission  and  wage  boards,  and 
establishes  a  flat  rate  of  wages  specified  in  the  statute  for  girls  four- 

^''Adapted  from  "The  Case  for  the  Minimum  Wage :  Status  of  Legis- 
lation in  the  United  States,"  in  The  Survey,  XXXIII,  487-489.  Copyright 
(1915). 

^•Massachusetts  preceded  the  states  enumerated  by  passing  a  law  provid- 
ing for  a  Minimum  Wage  Commission  in  1912, 


ECONOMIC  INSECURITY  563 

teen  to  sixteen  years  of  age,  for  minors  over  sixteen  years,  and  for 
adult  women. 

The  commissions  of  Oregon,  Washington,  Massachusetts,  and 
Minnesota  have,  during  1913  and  1914,  promulgated  wage  rates, 
and  the  difficulties  peculiar  to  our  system  of  legislation  are  now 
conspicuously  manifest. 

The  outstanding  characteristics  of  American  minimum-wage  leg- 
islation compared  with  that  of  England,  Australia,  and  New  Zealand 
are  three :  the  first  is  the  omission  of  men ;  the  second  is  its  reference 
to  the  welfare  of  the  people  as  a  whole;  the  third,  which  is  respon- 
sible for  both  the  others,  is  its  subordination  to  the  courts  on  grounds 
of  constitutionality,  entailing  the  practice  of  placing  upon  American 
states  the  burden  of  proof  that  they  are  acting  within  the  police 
powers  when  they  create  state  wage  commissions  and  wage  boards 
or  conferences.  In  several  states  the  name  "industrial  commission" 
or  "industrial  welfare  commission"  is  deliberately  intended  to  sug- 
gest that  here  is  no  apparatus  intended  merely  to  facilitate  haggling 
between  employers  and  employees,  but  an  organ  of  the  whole  of 
society  created  to  serve  the  whole,  by  protecting  the  health  and 
morals  of  women  and  minors. 

This  is  especially  conspicuous  in  the  laws  of  Oregon  and  Wash- 
ington with  their  preambles  which  set  forth  that:  "The  welfare  of 
the  state  of  Washington  [or  Oregon]  demands  that  women  and 
minors  be  protected  from  conditions  of  labor  that  have  a  pernicious 
effect  upon  their  health  and  morals.  The  state  of  Washington,  there- 
fore, exercising  herein  its  police  and  sovereign  power,  declares  that 
inadequate  wages  and  unsanitary  conditions  of  labor  exert  such 
pernicious  effect."  The  same  principle  underlies  the  laws  of  Cali- 
fornia, Colorado,  Minnesota,  and  Wisconsin. 

Only  Massachusetts  and  Nebraska  follow  the  precedent  set  by 
England  and  Australia  in  requiring  that  the  commission,  in  making 
determinations,  consider  also  the  state  of  the  industry,  not  exclusively 
the  needs  of  working  women.  Yet  these  states  express  their  sense 
of  need  that  the  public  participate  in  the  process  of  wage  determin- 
ation, Massachusetts  by  requiring  that  one  member  of  the  commis- 
sion shall  be  a  woman,  and  in  a  wage  board,  with  an  equal  number 
of  representatives  of  employers  and  employees,  there  must  be  one 
or  more  representatives  of  the  public.  Nebraska  provides  for  a 
commission  of  four  members,  of  which  one  must  be  a  woman.  Both 
Massachusetts  and  Nebraska  limit  to  mere  publicity  the  penalty  for 
failure  to  pay  th^  minimum-wage  rates  established  by  their  state 
commissions,  neither  fine  nor  imprisonment  being  prescribed. 


564  CURRENT  ECONOMIC  PROBLEMS 

The  Wisconsin  statute  provides  that  the  advisory  board  shall  be 
so  selected  as  "fairly  to  represent  employers,  employees,  and  the 
public."  Obviously  the  solicitude  for  representation  of  the  public 
arises  less  from  fear  that  its  interests  may  be  overlooked  than  from 
apprehension  lest,  without  such  representation,  the  courts  may  hold 
minimum- wage  laws  alien  to  the  police  powers  of  the  state. 

Despite  these  precautions,  however,  progress  is  for  the  moment 
halted.  Until  the  decision  of  the  United  States  Supreme  Court  be- 
comes known,  no  legislature  is  likely  to  experiment  further  in  the 
new  field. ^^  But  this  is  not  all.  The  Minnesota  rate-wage  estab- 
lished October  23,  1914,  to  become  effective  November  23,  has  been 
met  by  a  temporary  injunction  on  the  ground  that  "the  questions 
presented  are  important  and  doubtful,"  and  the  pending  decision 
in  the  Oregon  case  will  "doubtless  dispose  of  all  the  main  ques- 
tions involved  in  the  Minnesota  statute." 

Some  opposition  to  minimum-wage  legislation  has  come  from 
employers.  More  surprising  is  the  opposition  found,  here  and  there, 
among  labor  leaders.  Samuel  Gompers  and  others  have  opposed 
all  wage-board  legislation  for  men,  and  have  exercised  a  mildewing 
influence  upon  such  effort  even  when  confined  to  women.  But  the 
younger  men  within  the  ranks  of  trade-union  leaders  show  them- 
selves either  indifferent  or  favorable  to  it. 

These  circumstances — the  extraordinary  powers  of  the  courts, 
and  the  attitude  of  certain  labor  leaders — explain  the  stage  of  the 
movement  for  minimum-wage  laws  in  America  compared  with  Eng- 
land and  Australia.  The  case  now  pending  before  the  United  States 
Supreme  Court  to  determine  the  constitutionality  of  the  Oregon 
minimum-wage  law  will  settle  the  fate,  for  years  to  come,  of  effort 
in  this  field. 

278.     The  Futility  of  the  Minimum  Wage^* 

BY  J.  LAURENCE  LAUGHLIN 

The  hysterical  agitation  for  a  minimum  wage  (today  urged 
chiefly  for  women)  has  in  it  no  conception  of  a  relation  between 
wages  and  producing  power.  It  is  unsound  for  several  reasons 
which  touch  the  very  interests  of  the  laborers  themselves. 

*'In  the  case  of  Frank  C.  Stettler  and  Elmira  Simpson  v.  Industrial  Wel- 
fare Commission  of  Oregon,  the  state  Supreme  Court  unanimously  upheld  the 
constitutionaHty  of  the  Oregon  law.  An  appeal,  however,  was  taken  to  the 
United  States  Supreme  Court. 

** Adapted  from  "A  Monopoly  of  Labor,"  in  the  Atlantic  Monthly,  CXII, 
451-453.    Copyright  (1913). 


ECONOMIC  INSECURITY  565 

It  introduces  a  new  and  unjustifiable  basis  of  wages — that  wages 
shall  be  paid  on  the  basis  of  what  it  costs  the  recipient  to  Hve.  If 
it  is  urged,  for  instance,  that  a  woman  cannot  live  on  $5.00  a  week, 
but  can  live  on  $8.00  and  hence  her  minimum  wage  should  be  $8.00, 
the  whole  case  has  not  been  considered.  If  we  accept — what  we 
should  not  accept — the  principle  that  wages  should  be  related  to  the 
cost  of  living,  and  if  it  is  accepted  that  the  woman  could  live  on 
$8.00  a  week,  on  what  grounds  should  she  ever  receive  more  than 
$8.00  a  week?  On  what  grounds  could  any  one  get  $i8.cx)  a  week? 
At  present  $18.00  is  paid  on  the  ground  that  it  is  earned,  that  is, 
on  the  basis  of  a  relation  between  wages  and  producing  power.  No 
other  basis  can  stand  for  a  moment  in  the  actual  work  of  industry. 
Men  go  into  business  to  gain  profit ;  if,  in  their  opinion,  the  employee 
is  not  worth  $8.00  a  week,  she  will  not  be  retained,  no  matter  what  it 
costs  to  live.  If  she  is  worth  to  the  business  $18.00,  that  will  be  the 
wage.  No  law  can  force  anyone  to  remain  in  a  business  that  does 
not  pay. 

The  theory  of  a  minimum  wage  based  on  the  cost  of  living  is 
flatly  inconsistent  with  the  facts  of  daily  life  and  preparation  for  any 
occupation.  At  what  age  or  point  is  a  beginner,  or  apprentice,  to 
receive  the  full  legal  wage?  Is  no  boy,  or  apprentice,  to  be  allowed 
to  receive  a  partial  reward  till  he  is  a  full-fledged  adult , workman  ? 
How  about  the  woman,  who,  in  the  economic  role  of  domestic  labor, 
knits  stockings  in  odd  hours  in  order  to  add  a  little  to  the  family 
income — shall  she  receive  nothing  if  not  the  full  legal  wage?  Shall 
the  boy,  or  even  a  young  lawyer  just  entering  an  office,  be  forbidden 
to  receive  the  small  stipend  of  the  preparatory  period  ? 

Suppose  it  were  required  by  law  to  pay  shop-girls  $8.00  a  week 
instead  of  $5.00  on  the  ground  that  the  insufficient  $5.00  leads  to 
vice ;  then,  since  no  ordinary  business  would  pay  $8.00  unless  it  were 
earned,  those  who  did  not  earn  $8.00  would  inevitably  be  dropped 
from  employment  without  even  the  help  of  $5.00  to  save  them.  If 
$5.00  is  no  protection  from  vice,  how  much  less  is  no  wages  at  all? 
This  proposal  of  a  minimum  wage  is  directly  opposed  in  practice  to 
the  very  self-interest  of  the  girls  themselves. 

It  is  crass  to  try  to  remedy  wages  which  are  admittedly  too  low 
by  fixing  a  legal  minimum  wage,  which  can  never  be  enforced  unless 
private  business  establishments  are  to  be  regarded  as  state  institu- 
tions. In  a  state  factory,  wages  may  possibly  be  determined  by  law, 
but  not  in  open  competitive  business  conditions,  where  the  supply 
of  labor  has  as  much  influence  on  wages  as  the  demand.  If  the 
supply  of  women  wage-eanters  converges  on  only  certain  kinds  of 
work,  wages  will  be  lowered  by  the  very  large  supply  of  the  workers 


566  CURRENT  ECONOMIC  PROBLEMS 

There  is  no  exit  by  this  door  of  legal  enactment  as  to  the  amount  of 
wages. 

The  true  and  immediate  remedy  is  the  creation  of  ready  means 
by  which  the  industrial  capacity  of  the  wage-earning  women  will  be 
increased.  The  wrong  situation — of  which  low  wages,  possible 
starvation,  and  the  temptation  to  vice  are  only  symptoms — is  due 
primarily  to  the  fact  that  women  thrown  on  their  own  resources 
know  no  trade  and  crowd  each  other  in  the  market  for  unskilled 
labor.  The  remedy  lies  in  the  creation  of  places  of  instruction  where 
any  woman  (no  matter  how  poor)  shall  be  taught  a  trade  and  have 
skill  given  her  by  which  she  can  obtain  a  living  wage. 

The  remedy  lies  in  preventing  a  congestion  of  unskilled  feminine 
labor  by  industrial  education.  There  is  no  other  rational  or  per- 
manent or  human  way  out  of  the  present  wretched  situation,  if  we 
have  the  real  interest  of  the  workers  at  heart — and  are  not  interested 
chiefly  in  getting  some  cheap  political  notoriety. 

This  conclusion  applies  to  men  as  well  as  to  women.  Is  not  a 
skilled  carpenter  worth 'more  than  a  blunderer?  In  any  business, 
does  not  every  one  agree  that  it  is  fair  to  give  a  very  energetic,  live, 
active,  skillful  salesman  more  than  a  stupid?  If  he  is  skilled  he 
earns  more,  because  he  brings  in  more  business.  That  being  settled 
we  do  not  jix  his  wages  on  what  it  costs  him  to  live.  He  has  a  right 
to  spend  his  income  as  he  pleases.  Hence,  if  we  were  to  adopt  the 
theory  of  the  minimum  wage  we  should  be  adopting  a  new  theory 
of  wages,  which  would  justify  the  refusal  to  pay  higher  wages  based 
on  efficiency. 

The  only  real  permanent  aid  to  low  wages  is  to  increase  the  pro- 
ductivity and  skill  of  the  persons  at  the  bottom.  Instead  of  talking 
of  such  injurious  palliatives  as  minimum  wages,  create  institutions 
at  once  where  those  persons  can  be  given  a  trade  or  training  for  a 
gainful  occupation.  The  cry  for  a  minimum  wage  is  evidence  of  the 
industrial  incapacity,  the  lack  of  producing  power,  in  masses  of  our 
people.  The  cpncrete  ways  of  increasing  the  productive  power  of 
each  man  and  woman  are  not  unknown.  Moreover,  the  captain  of 
industry  can  introduce  carefully  worked-out  plans  for  helping  his 
operatives  to  rise  in  life ;  to  better  conditions  by  welfare  work ;  to 
encourage  savings  and  thrift ;  to  introduce  the  stimulus  of  profit 
sharing;  and  above  all,  establish  civil-service  methods  devised  to 
pick  out  and  promote  the  promising  youth  so  that  the  path  from  the 
bottom  to  the  top  is  open  to  every  employee.  Under  unrestricted 
competition,  there  will  be  seen  the  inevitable  results  of  'natural 
monopoly'  by  which  superiority  comes  to  its  own,  and  wages  are  in 
some  proportion  to  productive  power. 


ECONOMIC  INSECURITY  567 

279.     Wage-Settlement  by  External  Authority" 

BY  S.  J.  CHAPMAN 

The  fundamental  objection  to  the  settlement  of  wages  by  external 
authority  is  easily  formulated.  New  needs  are  constantly  arising; 
and  it  is  partly  by  the  spontaneous  emergence  of  new  needs,  changes 
in  the  proportions  of  needs,  and  the  satisfaction  of  new  demands, 
that  society  progresses.  It  will  not  be  inferred  from  this  statement, 
of  course,  that  caprioe  and  vacillation  in  demand  are  good.  It  is 
to  the  immediate  gain  of  the  community  that  production  should 
react  speedily  upon  the  fresh  calls  made  upon  it,  since  thereby  the 
most  satisfaction  is  elicited  from  a  given  quantity  of  producing 
power.  Further,  it  is  to  the  ultimate  advantage  of  the  community 
that  this  rapid  response  of  society  on  its  productive  side  to  'society  on 
its  consumptive  side  should  be  forthcoming,  since  thereby  imagina- 
tion is  quickened  and  the  way  is  laid  open  for  further  progress.  By 
the  satisfaction  of  old  wants  scope  is  given  for  the  expression  of 
new  wants.  Progress  does  not  mean  merely  change  of  wants,  apart 
from  the  character  of  the  change,  but  change  is  so  essential  as  to  be 
a  presupposition  of  progress.  The  general  disappointment  of  aspira- 
tions saps  social  vitality.  Again,  a  great  economy  results  from  inter- 
national specialism  following  the  divisions  marked  out  by  national 
differential  advantages  for  the  production  of  certain  goods.  These 
relative  advantages  are  variable,  and  therefore  the  industries  of  a 
country  with  much  foreign  trade  will  wax  and  wane  relatively  if  the 
results  are  to  be  procured  from  its  productive  power. 

Now  rapid  alterations  in  the  industrial  field,  in  response  to  the 
varying  circumstances  that  we  have  outlined,  can  be  secured  only  if 
public  demand  is  transferred  direct  to  capital  and  labour  through  the 
medium  of  the  employers'  demand  for  them.  If  it  is,  the  industry 
that  should  contract  naturally  contracts  because  it  offers  small  profits 
and  wages  below  the  normal  level,  while  the  business  that  should 
expand  naturally  expands  on  account  of  its  exceptional  remuner- 
ativeness  to  all  factors  which  engage  in  it.  Once  unlink  the  existing 
close  connections  between  public  demand  and  wages,  and  a  large 
proportion  of  the  nation's  productive  power  will  be  regularly  mis- 
applied, unless  or  until  settlement  at  comparative  stagnation  is 
induced.  Moreover,  the  best  will  not  be  made  of  the  aptitudes  and 
tastes  of  the  individuals  of  whom  society  is  composed.  No  arbitrator 
can  in  the  nature  of  things  possess  sufficient  knowledge  of  the 
demand  for,  and  supply  prices  of,  labour  to  enable  him  to  declare  the 
relative  wages  that  are  best  in  the  long  run  for  the  community  as  a 

"Adapted  from  Work  and  Wages,  II,  260-264.  Copyright  by  Longmans, 
Green  &  Co.  (1904)- 


568  CURRENT  ECONOMIC  PROBLEMS 

whole.  The  chances  are  that  in  many  of  the  awards  serious  mistakes 
will  be  made ;  after  some  time,  it  is  true,  the  awards  are  revised,  but 
it  is  then  too  late  for  all  the  damage  inflicted  to  be  repaired,  and  there 
is  again  no  surety  that  the  errors  will  be  corrected.  This  is  no  plea 
for  stringent  laisses  faire;  State  intervention  in  the  interests  of  life 
and  health,  and  combinations  to  render  more  effective  the  bargaining 
power  of  labour  and  the  demand  of  labour  for  pleasant  conditions, 
are  quite  different  in  principle  from  the  surrender  to  courts,  which 
can  never  have  before  them  the  data  to  enable  them  to  do  the  right 
thing  in  the  settlement  of  relative  remunerations  as  between  the 
numerous  classes  of  labour  and  other  factors  in  production.  To 
use  an  analogy,  the  problem  is  to  deduce  from  a  person's  constitu- 
tion how  much  food  he  should  take  each  week  for  the  next  six 
months.  'Who  shall  say?  For  who  shall  deduce  from  the  parts  of 
the  organism  their  joint  needs  now  and  for  the  next  few  months? 
Fortunately,  nature  solves  the  riddle  by  giving  to  such  organisms 
appetite.  In  the  social  organism  the  analogous  regulator  is  to  be 
found  in  individual  demands. 

There  are  two  further  dangers.  The  one  is  that,  though  some 
State  action  may  give  scope  to  individual  initiative — by  which  we 
advance — another  kind  of  State  action  may  weaken  it.  The  other 
danger  arises  from  the  fact  that  distribution  is  so  linked  to  produc- 
tion that  complexity  in  the  one  necessitates  complexity  in  the  other. 
If  society  is  incapable  of  assuming  a  more  intricate  system  of  dis- 
tribution, further  complication  for  the  improved  economic  working 
of  the  productive  system  is  retarded.  Industrialism  is  relatively 
simple  in  form  and  limited  in  extent  in  the  Australasian  Colonies. 
Agriculture  is  the  chief  occupation,  and  this  being  untouched  by  the 
arbitration  laws  is  a  vent  for  any  labour  or  capital  driven  out  of  the 
industries.  Hence  the  settlement  of  wages  by  boards  with  power 
may  not  very  seriously  diminish  prosperity.  But  it  would  in  a 
country  with  more  involved  productive  arrangements,  where  the 
loophole  of  escape  from  onerous  decisions  was  less  adequate.  Pro- 
gress would  be  impeded  until  the  artificial  system  was  repudiated, 
and  the  old  lesson  that  had  been  forgotten  of  the  self-settlement  of 
wages  under  simple  conditions  had  been  learned  afresh. 

Besides,  lastly,  there  is  the  unwholesomely  close  association  be- 
tween politics  and  self-interest.  What  would  be  the  state  of  democ- 
racy in  the  next  generation  if  wage-earners  regarded  the  govern- 
ment as  one  of  the  chief  arbiters  of  wages,  as  they  might  easily  do 
when,  according  to  their  experiences,  wages  had  been  settled,  as  a 
rule  at  least,  if  not  invariably,  in  a  Court,  State  instituted  and  State 
supported,  the  awards  of  which  were  enforced  by  the  State? 


ECONOMIC  INSECURITY  569 

280.     A  Minimum  Wage  for  Immigrants'* 

BY  PAUI.  U.  KELLOGG 

My  plea  is  to  draft  into  our  immigration  law  the  provision  that 
no  immigrant  who  arrives  here  after  a  specified  date  shall  be  per- 
mitted to  hire  out  to  a  corporate  employer  at  less  than  a  living  wage, 
say  $2.50  or  $3.00  a  day — until  five  years  are  elapsed,  and  he  has 
become  a  naturalized  citizen.  When  he  is  a  voter,  he  can  sell  his 
American  workright  for  a  song  if  he  must  and  will,  but  until  then  he 
shall  not  barter  it  away  for  less  than  the  minimum  cash  prize,  which 
shall  be  determined  as  a  subsistence  basis  for  American  family  live- 
lihood. 

It  would  be  neither  the  intent  nor  the  result  of  such  legislation 
to  pay  newcoming  foreigners  $3.00  a  day.  No  corporation  would 
hire  Angelo  Lucca  and  Alexis  Spivak  at  $3.00  as  long  as  they  could 
get  John  Smith  and  Michael  Murphy  and  Karl  Schneider  for  less. 
It  would  be  the  intent  and  result  of  such  legislation  to  exclude  Lucca 
and  Spivak  and  other  "greeners"  from  our  congregate  industries, 
which  beckon  to  them  now.  It  would  leave  village  and  farm  and 
country  open  to  them  as  now.  And  meanwhile,  as  the  available 
labor  supply  fell  off  in  our  factory  centers,  the  wages  paid 
Smith,  Murphy,  Schneider,  and  the  rest  of  our  unskilled  labor 
would  creep  up  toward  the  federal  minimum. 

First  a  word  as  to  the  constitutionality  of  such  a  plan.  It  would 
be  an  interference  with  freedom  of  contract;  but  the  contract  would 
lie  between  an  alien  and  a  corporation;  between  a  non-citizen  and  a 
creature  of  the  state.  I  have  the  advice  of  constitutional  lawyers 
that  so  far  as  the  alien  workman  goes  the  plan  would  hold  as  an 
extension  of  our  laws  regulating  immigration.  On  the  other  hand, 
the  corporation-tax  laws  afford  a  precedent  from  setting  off  the  cor- 
porate employer  and  regulating  his  dealings. 

For  three  special  reasons  my  belief  is  that  the  general  enforce- 
ment of  such  a  law  would  be  comparatively  simple.  Sworn  state- 
ments as  to  wage  payments  could  be  added  to  the  data  now  required 
from  corporations  under  the  federal  tax  law.  This  would  be  an 
end  desirable  in  itself.  In  the  second  place  every  resident  worker 
would  report  every  violation  that  affected  his  self-interest  or  threat- 
ened his  job.  For  my  third  reason  I  would  turn  to  no  less  a  counsel 
than  Mark  Twain's  Pudd'n  Head  Wilson.  With  employment  re- 
port cards  half  a  dozen  clerks  in  a  central  office  in  Washington 

*° Adapted  from  "Immigration  and  the  Minimum  Wage,"  in  the  AnnaL 
of  the  American  Academy  of  Political  and  Social  Science,  XLVIII,  75-/7 
Copyright  (1913). 


570  CURRENT  ECONOMIC  PROBLEMS 

could  keep  tab  on  the  whole  situation  by  means  of  finger  prints. 
Finger  prints  could  be  taken  of  each  immigrant  on  entry;  they  could 
be  duplicated  at  any  mill  gate  or  mine  entry  by  the  employer,  filed 
and  compared  rapidly  at  the  Washington  bureau. 

As  compared  with  joint  minimum  wage  boards  affecting  men 
and  women  alike,  as  do  those  of  Australia  and  England,  the  plan 
would  have  the  advantage  of  not  being  democratic.  The  workers 
themselves  would  not  take  part  in  its  administration.  And  the  plan 
would  have  the  signal  advantage  of  being  national,  so  that  progres- 
sive commonwealths  need  not  penalize  their  manufacturers  in  com- 
peting with  laggard  states. 

As  compared  with  the  literacy  test,  the  plan  would  not  shut 
America  oflf  as  a  haven  of  refuge  and  would  not,  while  it  was  under 
discussion,  range  the  racial  societies  and  the  internationalists  along- 
side the  steamship  companies  and  the  exploiters  of  immigrant  labor. 
And  it  would  have  an  even  more  profound  influence  on  the  condi- 
tion of  life  and  labor. 

What  are  the  positive  benefits  to  be  expected  from  such  a  pro- 
gram? 

1.  Tt  would  gradually,  but  irresistibly,  cut  down  the  common 
labor  supply  in  our  industrial  centers. 

2.  Once  the  unlimited  supply  of  green  labor  was  lessened  in 
these  industrial  centers,  a  more  normal  equilibrium  would  be  struck 
between  common  labor  and  the  wages  of  common  labor.  Now  it  is 
like  selling  potatoes  when  everybody's  bin  is  full. 

3.  It  would  tend  to  stave  oflf  further  congestion  in  the  centers 
of  industrial  employment  and  give  us  a  breathing  spell  to  conquer 
our  housing  problems  and  seat  our  school  children. 

4.  It  would  shunt  increasing  numbers  of  immigrants  to  the 
rural  districts  and  stimulate  patriotic  societies  to  settle  their  fellow 
countrymen  on  the  land. 

5.  It  would  tend  to  cut  down  the  accident  rate  in  industries 
where  "greeners"  endanger  the  lives  of  their  fellows. 

6.  It  would  cut  down  the  crowd  of  men  waiting  for  jobs  at  mill 
gates  and  street  corners,  correspondingly  spread  out  rush  and  sea- 
sonal work,  and  help  along  toward  the  time  when  a  man's  vocation 
might  mean  a  year-long  income  for  him. 

7.  It  would  give  resident  labor  in  the  cities  a  chance  to  organize 
at  the  lower  levels  and  develop  the  discipline  of  self-government. 

8.  It  would  put  a  new  and  constructive  pressure  on  employers 
to  cut  down  by  invention  the  bulk  of  unskilled  occupations,  the 
most  wasteful  and  humanly  destructive  of  all  work. 


ECONOMIC  INSECURITY  571 

9.  It  would  bring  about  a  fair  living,  a  household  wage,  in  such 
routine  and  semi-skilled  occupations  as  remained. 

10.  It  would  tend  to  change  mining  settlements  and  mill  towns 
from  sleeping  and  feeding  quarters  into  communities. 

G.     COMPULSORY  ARBITRATION  AND  WAGES 
281.     Arbitration  in  New  Zealand" 

BY  HUGH  H.  LUSK 

The  New  Zealand  Arbitration  Law  was  the  first  attempt  ever 
made  on  anything  like  a  national  scale  to  ensure  something  like  jus- 
tice for  the  workers,  while  at  the  same  time  it  grappled  with  the  evil 
that  had  been  an  increasing  one  in  every  civilized  country  for  half 
a  century.  It  was  recognized  that  every  form  of  warfare — whether 
between  nations,  classes,  or  individuals, — was  in  its  nature  an  ap- 
peal to  force,  and  not  to  fair-play  or  justice.  It  was,  in  fact,  an 
appeal  to  the  higher  intelligence,  as  well  as  to  the  common-sense, 
both  of  workers  and  employers;  and  it  said  much  for  the  innate 
common  sense  of  the  classes  for  whose  benefit  it  was  in  the  first 
place  intended,  that  they  were  willing  at  least  to  give  it  a  trial. 

The  Arbitration  Law  of  New  Zealand  begins  with  a  full  recog- 
nition of  the  principle  of  Trades  Unionism,  which  it  makes  use  of 
as  the  basis  of  the  new  law.  It  provides  that  any  Union  containing 
a  certain  number  of  members  may  avail  itself  of  ,the  benefits 
of  the  statute  by  registering  the  association  as  one  subject  to  the 
provisions  of  the  law.  The  only  compulsory  feature  of  the  statute 
is  that  as  long  as  the  association  and  its  members  remain  registered 
they  shall  be  subject  to  the  provisions  of  the  statute. 

These  provisions  are  aimed  directly  at  the  prevention  of  indus- 
trial warfare  by  making  it  a  punishable  offence  for  any  body  of 
workers  to  leave  off  work  in  concert,  for  the  purpose  of  compelling 
the  employers  in  any  trade  or  employment  to  agree'  to  a  demand  for 
higher  wages,  or  any  other  alteration  in  the  conditions  of  their  em- 
ployment. On  the  other  hand  it  is  equally  an  offence  for  any  asso- 
ciation of  employers  to  discontinue  the  employment  of  their  workers 
for  the  purpose  of  compelling  their  agreement  to  any  change  in 
their  rates  of  payment,  in  their  hours  of  work,  or  to  any  other  pro- 
posed change  in  the  existing  conditions  of  employment.  Instead  of 
a  resort  either  to  the  strike  or  the  lock-out,  the  law  provides  that 
whenever  a  dispute  arises  in  any  trade  in  which  either  the  workers 
or  the  employers  are  registered  as  an  association  under  the  pro- 
visions of  the  statute,  either  party  may  at  once  call  in  the  assistance 

■* Adapted  from  Social  Welfare  in  New  Zealand,  74-88.    Copyright  by 
Sturgis  &  Walton  (igu). 


572  CURRENT  ECONOMIC  PROBLEMS 

of  the  local  Board  of  Conciliation,  whose  duty  it  is  to  meet  the 
representatives  of  the  parties,  and  endeavour  by  all  reasonable  means 
to  bring  about  an  agreement  on  the  matters  in  dispute.  In  case 
conciliation  should  prove  ineffectual,  hoAvever,  it  becomes  the  duty 
of  the  conciliator  to  refer  the  question  to  the  Arbitration  Court 
without  delay.  This  court  consists  of  five  members  in  all,  two  of 
whom  are  chosen  by  the  votes  of  the  registered  associations  of  the 
workers,  and  two  by  those  of  the  registered  associations  of  em- 
ployers, while  the  fifth  member  of  the  Court  is  one  of  the  judges 
of  the  Supreme  Court,  who  is  also  President  of  the  Arbitration 
Court,  and  is  from  time  to  time  appointed  by  the  Government  to 
this  particular  office.  The  decisions  of  the  Court  are  declared  by 
the  statute  to  be  final,  and  subject  to  no  appeal,  except  on  the  single 
ground  that  the  question  dealt  with  is  beyond  the  powers  given  to 
the  Court. 

The  judgments  of  the  Arbitration  Court  may  be  enforced  either 
by  fines,  levied  on  the  property  of  the  Associations,  or  of  individual 
members ;  or  by  imprisonment  of  the  officers,  or  of  members  of 
such  associations  as  may  be  declared  guilty  of  contempt  of  the 
Arbitration  Court. 

The  methods  by  which  the  New  Zealand  Arbitration  Court  has 
arrived  at  its  conclusions  are  probably  without  precedent  in  the 
history  of  modern  commercialism.  Its  first  duty  in  all  cases  where 
the  amount  of  wages  was  in  dispute  was  to  ascertain  what  it  should 
cost  the  average  worker,  with  a  wife  and  family,  to  live  in  reasonable 
comfort  and  respectability.  Its  second  duty  was  to  determine  how 
much  the  profits  of  the  employers  in  an  ordinary  year  would  enable 
them  to  pay.  The  first  question  was  one  of  national  policy.  The 
second  question  was  one  of  fair-play  and  ordinary  justice,  as  be- 
tween man  and  man ;  and  to  form  a  fair  and  intelligent  conclusion  it 
was  necessary  to  learn  a  good  many  things  that  had  been  regarded  in 
the  past  as  the  business  of  the  employers,  and  of  nobody  else. 

It  may  be  said  that  the  answer  to  the  question  of  the  amount 
of  wages  needed  to  secure  a  decent  living  for  the  workers  and  their 
families  was,  after  all,  a  matter  of  opinion,  and  possibly  even  of 
prejudice.  Fortunately  there  was  in  New  Zealand,  as,  indeed,  there 
is  probably  in  every  country  a  court  of  appeal  on  matters  of  opinion 
that  may  generally  be  trusted  to  take  a  view  of  such  questions  that 
is  tolerably  fair.  The  New  Zealand  statute  has  provided  for  such 
an  appeal,  by  providing  that  the  proceedings  of  the  Arbitration 
Court  should  in  all  cases  be  conducted  in  public,  so  that  the  evidence 
given  should  be  open  to  the  press  and  known  to  the  people.  In  dif- 
ferent communities,  it  is  true  the  public  opinion  thus  formed  might 
differ  considerably ;  but  in  every  country,  it  may  be  said  with  con- 
fidence, the  opinion  thus  formed  would  exercise  a  powerful  influ- 


ECONOMIC  INSECURITY  573 

ence  on  a  court  of  arbitration.  What  the  Court  had  to  do,  therefore, 
was  in  the  first  place  to  decide  on  the  lowest  reasonable  living  wage — 
and  this  was  practically  the  same  in  every  trade  or  employment. 
This  lowest  living  standard,  as  it  did  not  depend  on  the  profits  of 
the  business,  was  not  affected  by  the  question  either  of  capital  in- 
vested, or  of  the  conditions  of  the  trade. 

The  question  of  the  minimum  wage,  however,  was  only  a  part, 
and  a  small  part,  of  the  problem  with  which  the  Arbitration  Court 
had  to  deal.  While  it  was  clear  that  nobody  could  be  allowed  to 
pay  less  than  a  living  wage  to  those  employed,  the  question  of 
justice  demanded  a  good  deal  more  than  this  before  it  could  be  said 
to  be  fairly  settled.  The  old  idea  that  the  man  who  found  the  money 
should  have  everything,  and  the  man  who  found  the  labour  as  little 
as  possible,  had  been  abandoned  in  New  Zealand ;  the  problem  which 
the  Court  had  to  solve  was  the  somewhat  indefinite  one — what  was 
fair?  To  enable  this  to  be  done  the  law  provided  that  the  Court 
might  call  on  the  employers,  in  any  dispute  as  to  wages,  to  produce 
the  books  containing  the  accounts  of  their  business,  and  to  show 
exactly  w^hat  capital  was  invested  in  it,  and  what  profits  had  been 
earned.  The  task  of  the  Court  was  by  no  means  an  easy  one.  Even 
when  the  books  of  a  business  had  been  produced,  and  the  capital 
invested,  and  the  profits  made  had  been  ascertained,  the  question 
remained  what  ought  the  employers  to  give  out  of  the  profits  to  the 
workers,  without  whose  assistance  no  profits  could  have  been 
earned?  What,  as  a  matter  of  fact,  the  Arbitration  Court  of  New 
Zealand  has  done  during  the  sixteen  years  of  its  existence  has  been 
to  come  to  some  conclusion  that  seemed  fair  in  each  case.  The 
principle  of  a  real  partnership  has  been  acknowledged  by  the  Court, 
but  the  shares  due  to  the  partners  have  been  matters  of  opinion,  and 
the  awards  of  the  Court  have,  as  a  consequence,  always  been  open 
to  criticism  by  one  or  other  party  to  the  dispute. 

There  have  been  many  such  criticisms,  both  in  the  colony  itself 
and  elsewhere ;  but  as  a  rule  the  parties  most  nearly  concerned  have 
admitted  that  the  decisions  of  the  Court  were  conceived  in  a  spirit 
of  fair-play  as  between  the  parties.  The  law  has  now  been  in  force 
during  sixteen  years,  and  it  has  been  accepted  by  both  employers 
and  employed  as  the  controlling  force  of  the  industrial  life  of 
nearly  a  million  people  of  our  own  race.  Amendments  have  from 
time  to  time  been  made  in  the  law,  as  new  features  have  appeared 
that  seemed  to  call  for  regulation,  but  in  all  essentials  the  law  that 
was  conceived  in  a  spirit  of  fair-play  and  justice — recognizing 
equally  the  rights  of  Labour,  Capital,  and  of  the  people  at  large, 
sixteen  years  ago,  remains  in  force  today,  and,  like  all  the  other 
laws  of  New  Zealand,  is  enforced  without  fear  or  favour. 


574  CURRENT  ECONOMIC  PROBLEMS 

282.     Compulsory  Arbitration  in  Theory  and  Practice^^ 

BY  JAMES  EDWARD  IX  ROSSIGNOIv  AND  WII.I.IAM  DOWNIE  STEWART 

There  is  a  pretty  well-defined  theory  in  justification  of  compul- 
sory arbitration  in  the  minds  of  those  who  favour  that  method  of 
settling  industrial  disputes.  The  competitive  system,  in  this  view, 
has  resulted  in  two  great  evils ;  sweating  and  strikes.  Under  sweat- 
ing the  workers  receive  less  than  enough  to  secure  a  decent  subsist- 
ence for  a  human  being,  and  the  strike  is  a  form  of  private  war  in 
which  the  strongest  win,  not  those  who  have  justice  on  their  side, 
and  which  causes  great  inconvenience  to  the  public,  who  are  a  third 
party  in  every  strike.  All  this  evil  and  injustice  should  be  done 
away  with  by  an  appeal  to  a  court. 

On  the  surface  the  theory  appears  to  be  highly  reasonable,  but 
when  put  into  practice  serious,  if  not  fatal,  difficulties  arise.  One  of 
these  has  to  do  with  the  discovery  of  specific  principles  of  justice; 
the  other  with  the  enforcement  of  awards  supposedly  just. 

The  theory  of  fair  wages  that  appears  to  prevail  is  the  doctrine 
of  the  living  wage,  stated  both  in  its  negative  and  its  positive  form. 
Stated  negatively,  the  theory  holds  that  extremely  low  wages,  such 
as  are  found  under  the  sweating  system,  are  not  fair  wages,  be- 
cause insufficient  to  afford  a  decent  living  according  to  the  colonial 
standard.  Stated  positively,  a  fair  wage  is  a  wage  which  is  suf- 
ficient to  give  the  worker  a  decent  living  according  to  the  colonial 
standard. 

Other  difficulties  arise  when  the  theories  are  applied  to  actual 
cases.  For  example,  a  wage  which  would  be  quite  sufficient  for  a 
single  man  might  be  inadequate  for  a  married  man,  and  should  vary 
with  the  size  of  his  family  and  their  ability  to  contribute  to  their 
own  support.  Again,  a  living  wage  for  a  skilled  worker  must  be 
higher  than  that  for  a  common  labourer,  since  his  standard  of  liv- 
ing is  higher.  .  This  arises  from  the  fact  that  skilled  labourers  are 
scarce,  but  this  introduces  another  complicating  factor,  the  supply 
of  labour,  which,  in  densely  populated  countries,  threatens  to  de- 
stroy, not  only  the  theory,  but  the  possibility  of  a  living  wage. 

These  and  other  complications  prevent  the  creation  of  a  body 
of  legal  principles  defining  and  explaining  the  nature  of  fair  or 
reasonable  wages,  but  do  not  prevent  the  Court  from  bearing  in 
mind  the  desirability  of  keeping  the  customary  standards  of  colonial 

'^Adapted  from  State  Socialism  in  New  Zealand,  238-247.  Copyright  by 
Thomas  Y.  Crowell  &  Co.  (1910). 


ECONOMIC  INSECURITY  575 

life  from  falling,  and  the  equal  or  greater  desirability  of  raising 
those  standards  as  much  as  possible.  The  doctrine  of  a  living 
wage,  then,  is  not  an  established  legal  principle,  but  an  ideal  toward 
which  people  may  strive. 

In  practice,  the  awards  appear  to  be  based  on  two  main  prin- 
ciples ;  first  the  desire  and  intention  of  the  Court  to  secure  a  living 
wage  to  all  able-bodied  workers ;  second,  the  desire  of  the  Court  to 
make  a  workable  award,  that  is,  to  grant  as  much  as  possible  to  the 
workers  without  giving  them  more  than  the  industry  can  stand. 
In  doing  this  regard  must  be  had  to  the  prosperity  of  a  given  in- 
dustry as  a  whole,  if  not  to  the  profits  of  individual  employers.  It 
is  usually  taken  for  granted  that  no  reduction  will  be  made  in  the 
customary  wages  in  any  industry,  and,  in  times  of  depression,  this 
might  be  regarded  as  a  third  regulative  principle.  Again,  it  is 
the  custom  of  the  unions,  in  formulating  their  disputes,  to  demand 
more  than  they  expect  to  get,  knowing  that,  in  the  worst  case,  they 
will  lose  nothing.  So  frequently  has  this  been  done  that  one  might 
almost  lay  down  a  fourth  regulative  principle,  the  principle  of  split- 
ting the  difference. 

The  rigidity  of  system  which  is  characteristic  of  the  railway 
rates  seems  to  be  taking  possession  of  the  regulation  of  wages  also. 
When  the  awards  were  few  in  mmiber,  it  was  easy  to  make  a  change 
without  any  serious  disturbance  to  industry;  but  now  that  they  are 
numerous  and  their  scope  has  been  widely  extended,  it  is  difficult 
to  make  a  change  in  one  without  making  many  other  changes,  for 
the  sake  of  adjusting  conditions  of  labour  to  the  changing  con- 
ditions of  business. 

Another  stumbling-block  in  the  way  of  advance  in  wages  is  the 
inefficient  or  marginal  or  no-profit  employer,  who,  hanging  on  the 
ragged  edge  of  ruin,  opposes  the  raising  of  wages  on  the  ground 
that  the  slightest  concession  would  plunge  him  into  bankruptcy.  His 
protests  have  their  effect  on  the  Arbitration  Court,  which  tries  to 
do  justice  to  all  the  parties  and  fears  to  make  any  change  for  fear 
of  hurting  somebody.  But  the  organized  workers,  caring  nothing 
for  the  interests  of  any  particular  employer,  demand  improved  con- 
ditions of  labour,  even  though  the  inefficient  employer  be  elimi- 
nated and  all  production  be  carried  on  by  a  few  capable  employers 
doing  business  on  a  large  scale  and  able  to  pay  the  highest  wages. 
This  is  not  to  say  that  even  the  most  efficient  employers  could 
afford  to  pay  wages  much  in  excess  of  those  now  prevailing. 

From  such  a  statement  as  this  it  is  but  a  step  to  the  position  that 
wages  are  determined  chiefly  by  economic  laws,  and  that  the  Arbi- 
tration Court  can  cause,  at  most,  very  slight  deviations  from  the 
valuations  of  the  market. 


576  CURRENT  ECONOMIC  PROBLEMS 

It  is  not  easy  to  show  that  compulsory  arbitration  has  greatly 
benefited  the  workers  of  the  Dominion.  Sweating  has  been  abol- 
ished, but  it  is  a  question  whether  it  would  not  have  disappeared 
in  the  years  of  prosperity  without  the  help  of  the  Arbitration  Court. 
Strikes  have  been  prevented,  but  New  Zealand  never  suffered  much 
from  strikes,  and  it  is  possible  that  the  woricers  might  have  gained 
as  much,  or  more,  by  dealing  directly  with  their  employers  as  by 
the  mediation  of  the  Court. 

It  is  a  common  opinion  in  New  Zealand  that  the  increase  in  the 
cost  of  living  has  been  due  largely  to  the  high  wages  and  favourable 
conditions  of  labour  fixed  by  the  Arbitration  Court,  but  so  wide- 
spread a  result  cannot  have  been  due  chiefly  to  local  causes. 

Manufacturers  complain  that  the  awards  have  been  so  favour- 
able to  the  workers  as  to  make  it  difficult  to  compete  with  British 
and  foreign  manufacturers,  and  demand  that  either  the  arbitra- 
tion system  be  abolished  or  that  they  be  given  increased  protection 
by  increased  duties  on  imported  goods.  It  is  claimed  that  the  growth 
of  manufactures  has  not  kept  pace  with  the  growth  of  population 
and  the  importation  of  manufactures  from  abroad. 

There  is  such  agreement  among  manufacturers  as  to  the  effect 
of  compulsory  arbitration  in  increasing  the  cost  of  production  that 
their  statements  cannot  be  lightly  dismissed,  especially  as  many  un- 
biased writers  concur  in  the  opinion. 

Unquestionably,  manufacturers,  with  the  exception  of  the  great 
industries  which  work  up  raw  materials  for  market,  are  not  doing 
any  too  well,  but  it  is  not  likely  that  compulsory  arbitration  is  the 
chief  cause  of  this.  The  high  wages  which  manufacturers  have  to 
pay  are  due  chiefly  to  industrial  conditions  which  always  prevail 
in  a  new,  thinly  populated  country  with  great  natural  resources 
awaiting  development. 


'XI 

THE   PROBLEMS   OF  TRADE  UNIONISM    ' 

You  have  doubtless  heard  the  statement,  "In  America  there  is  no  class- 
conscious  proletariat;  for  the  American  laborer  sees  in  himself  a  capitalist 
in  embryo."  When  our  country  possessed  an  open  frontier,  undeveloped 
natural  resources,  opportunities  for  the  ready  acquisition  of  property,  and 
a  rising  standard  of  living,  a  vigorous  protest  against  conventional  social 
arrangements  was  not  to  be  expected.  But  with  the  passing  of  the  frontier, 
the  restriction  of  opportunity,  and  the  increasing  tendency  toward  social 
stratification,  sentiments  are  changing.  As  laborers  are  convinced  in  increas- 
ing numbers  that  they  are  permanently  of  the  "proletariat,"  they  express 
themselves  more  vigorously  against  a  "system"  that  makes  inequalities  possi- 
ble. This,  however,  hardly  threatens  a  "class-conflict"  in  the  immediate 
future;  our  class  and  group  lines  run  in  too  many  directions  and  cut  each 
other  at  too  many  angles  for  that. 

The  "social  unrest"  is  much  more  closely  associated  with  group  than 
with  class  interests.  There  are  many  groups  of  large  capitalists  and  of 
skilled  laborers.  There  exist  accordingly  many  types  of  "capitalism"  and 
even  more  of  "unionism."  Small  capitalists  and  unskilled  laborers  alike  are 
without  consciously  developed  group  feelings  and  vehicles  for  the  expression 
of  these  feelings.  It  is  those  who  are  best  off,  those  who  appeal  least  to 
our  sympathies,  whose  strength  lies  in  union.  However,  since  these  labor 
groups  are  everywhere  in  contact  with  much  the  same  type  of  "capitalist 
groups,"  they  have  much  the  same  prejudices,  sentiments,  and  theories. 
Fighting  as  they  are,  each  for  self,  they  are  creating  a  common  body  of  labor 
theory,  and  their  respective  interests  are  impelling  them  to  a  certain  amount 
of  common  activity.     The  like  is  true  of  the  capitalists. 

A  study  of  the  appraisals  placed  upon  unionism  by  men  whose  relations 
to  it  are  very  different,  such  as  those  of  an  employer,  a  unionist,  and  a 
college  president  given  below,  show  fundamental  differences  as  to  the  value 
of  such  an  institution.  Perhaps  nothing  connected  with  "the  labor  movement" 
is  harder  to  understand — or  more  necessary  to  an  appreciation  of  the  problems 
of  trade  unionism — than  the  theories  and  attitudes — the  viewpoints  if  you 
will — of  capitalists  and  laborers.  They  are  as  conflicting  and  contradictory 
to  an  outsider  as  they  are  obvious  and  axiomatic  to  those  who  hold  them. 
The  capitalist,  concerned  with  the  "business"  side  of  industry,  easily  acquires 
an  tmderstanding  of  the  importance  of  basic  institutions.  He  accordingly 
thinks  in  terms  of  legality,  assumes  the  schemes  of  values  surrounding  him 
to  be  absolute,  surrounds  "property,"  "contract,"  and  their  complements 
with  an  air  of  sanctity,  regards  "the  constitution"  as  supreme,  and  puts  his 
full  trust  in  the  integrity  of  the  courts.  In  determining  the  relations  of 
employer  and  employees,  he  relies  upon  the  efficacy  of  free  competition  and 
individual  bargaining,  insists  upon  his  right  to  prescribe  the  conditions  of 
employment,  and  believes  quite  firmly  that  identical  legal  rights  guarantee 
equality  of  treatment  to  the  two  parties. 

The  laborer,  concerned  with  the  technical  side  of  the  process,  acquires 
a  common-sense  philosophy  of  force ;  he  believes  in  fatalism ;  he  thinks  that 
the  employer  has  a  more  strategic  position  in  bargaining  than  he  possesses; 
he  is  convinced  that  capital  concentrated  under  corporate  ownership  can  be 
fought  only  by  "united"  labor.  Unity  in  the  labor  group,  accordingly,  is 
the  one  thing  that  is  necessary  to  an  improvement  in  conditions.  To  secure 
it  he  thinks  it  necessary  to  insist  uncompromisingly  upon  the  "principle  of 

577 


578  CURRENT  ECONOMIC  PROBLEMS 

uniformity";  upon  a  control  of  apprenticeship,  of  hiring  and  discharge,  of 
technique,  of  materials — in  short  of  all  that  is  necessary  to  secure  in  the 
larger  _  sense  the  absolutely  necessary  "closed  shop" ;  and  particularly  upon 
collective  bargaining.  This  attitude  serves  to  make  quite  intelligible  such 
peculiar  phenomena  as  restriction  of  output,  taboos  upon  non-union  materials, 
and  the  intense  hatred  of  "scabs." 

_  The  antithesis  between  the  two  systems  finds  a  clear  expression  in 
"scientific  management."  The  employers,  who  are  responsible  for  the  many 
innovations  which  masquerade  under  this  catholic  name,  aim  at  giving  to 
management  the  control  of  technique,  the  selection  of  men  properly  qualified 
for  various  productive  tasks,  the  establishment  of  a  close  connection  between 
the  individual's  work  and  his  pay,  and  inferentially  they  aim  at  individual 
bargaining.  The  laborers  oppose  it  because  it  strips  them  of  the  control  of 
technique,  of  the  right  to  hire  and  discharge  laborers,  of  the  prescription  of 
the  conditions  of  employment — of  that  "uniformity"  which  is  essential  to 
collective  activity. 

Industrial  conflict,  which  is  the  most  spectacular  side  of  the  trade-union 
movement,  is  to  be  explained  very  largely  in  terms  of  "collective  bargaining." 
The  opposing  parties  make  use  of  quite  similar  weapons :  the  strike,  for 
example,  finds  its  counterpart  in  the  lockout,  and  the  boycott  in  the  blacklist. 
Each  of  these,  curiously  enough,  resolves  itself  into  the  collective  exercise 
of_  a  right  which  in  the  individual  case  is  legally  recognized.  It  is  not  sur- 
prising that  law,  lacking  an  adequate  social  philosophy,  and  accustomed  to 
discover  society  by  aggregating  individuals,  should  have  been  put  to  some 
sore  shifts  in  dealing  with  these  collective  weapons.  The  use  of  thesp  is 
usually  part  of  a  protracted  campaign  prosecuted  for  many  years,  using  a 
varied   strategy,    and    employing   many    different    instruments. 

In  the  last  ten  years  the  strategic  position  of  the  employers  has  been 
greatly  strengthened,  that  of  the  laborers  correspondingly  weakened.  This 
is  partly  due  to  the  greater  staying  power  of  capital.  In  part  it  is  due  to 
the  close  correspondence  between  the  interests  of  the  employers  and  the 
natural  development  of  an  individualistic  social  system.  This  is  evident  in 
the  undermining  of  the  powers  of  unionism  by  a  long  succession  of  court 
decisions.  But  to  a  considerable  extent  it  is  due  to  the  effectiveness  of 
employers'  associations.  Because  of  their  smaller  numbers,  employers  better 
than  laborers  can  make  use  of  devices  which  lack  full  legal  approval.  The 
blacklist,  for  instance,  can  be  effectively  used  where  its  very  publicity  pro- 
hibits the  use  of  the  boycott.  Likewise,  through  "spies,"  employers  can  get 
advance  information  of  the  strategy  of  an  anticipated  industrial  conflict. 
It  is  beyond  the  power  of  unions  to  get  any  such  information.  The  associa- 
tion has,  through  careful  study,  reduced  strike-breaking  almost  to  an  exact 
science.  The  employers  have  liberally  used  funds  to  "educate"  the  public 
to  the  evils  of  those  practices  of  the  unions  which  are  most  inimical  to  them. 
Immigration,  too,  has  stood  them  in  good  stead. 

This  weakening  in  the  strategic  position  of  labor  is  producing  some 
very  important  modifications  in  our  social  institutions.  It  is  forcing  "labor 
into  politics."  The  "exemption  clauses"  of  the  Clayton  act  are  but  earnests 
of  what  we  may  eventually  expect.  Organized  labor  at  the  polls  is  far 
stronger  than  organized  capital.  If  its  theory  is  forced  into  our  institu- 
tional system,  our  whole  social  life  will  be  profoundly  affected.  Another 
form  in  which  it  is  seeking  expression  is  through  such  subtle  and  harassing 
methods  as  "the  intermittent  strike"  and  sabotage.  These  devices  of  "revo- 
lutionary unionism"  are  making  their  way  into  some  very  well-established 
unions.  It  need  not  be  said  that  back  of  these  methods  is  an  attitude  which 
insists  upon  the  welfare  of  the  small  group  even  at  the  expense  of  society 
as  a  whole. 

Our  study  of  its  more  conspicuous  features  must  not  allow  us  to  over- 
look the  importance  of  unionism  as  an  agency  of  social  control.  The  infor- 
mation, theories,  and  prejudices  which  the  laborers  accuire  from  their  unions 


TRADE  UNIONISM  579 

influence  profoundly  their  thought  and  action  upon  non-industrial  as  well  as 
upon  industrial  matters.  The  unions  can  eliminate  from  the  lives  of  their 
members  much  of  economic  insecurity,  can  do  much  to  establish  better  work- 
ing conditions,  and  can  set  models  for  the  state  to  use  in  improving  the  con- 
ditions of  unorganized  labor.  It  is  more  than  possible  that  eventually  they 
can,  through  the  trade  agreement,  create  permanent  positions  and  equities  in 
property  for  labor,  and  that  these  will,  under  the  guise  of  having  been 
established  under  free  contract,  be  recognized  by  the  law.  Our  gravest  con- 
cern is  lest,  in  seeking  the  interest  of  the  group,  the  interests  of  society  be 
completely  lost  sight  of. 

A.     GROUP  AND  CLASS  CONSCIOUSNESS 
283.     Bourgeoisie  and  Proletariat^ 

BY  WERNER  SOMBART 

Capitalism  is  based  on  the  private  ownership  of  all  commodities, 
and  therefore  also  of  those  which  are  required  for  production — raw 
material,  machinery,  factories,  land.  Historic  development  has 
brought  it  about  that  production  in  these  days  is  on  a  large  scale; 
that  is  to  say,  it  is  carried  on  by  the  combination  of  many  laborers 
under  uniform  direction.  Thus,  a  thousand  men  are  united  to  work 
a  mine  or  a  machine  factory,  and  hundreds  to  spin  or  weave  in 
some  big  establishment.  But  the  same  development  has  also  brought 
it  about  that  those  who  work  together  in  this  way  have  not  the  same 
rights  with  regard  to  the  means  of  production.  Some  own  these 
means  of  production,  and  therefore  become  the  directing  factors  in 
the  work  of  production,  and  also  owners  of  the  commodities  pro- 
duced. The  others,  who  form  the  great  mass  of  the  workers,  are 
shut  out  of  possession  of  the  means  of  production.  Hence  it  fol- 
lows that,  in  order  to  live,  they  are  forced  to  put  their  labor  power 
at  the  disposal  of  those  who  do  possess  the  means  of  production,  in 
return  for  a  money  payment.  This  comes  about  by  way  of  a  wage 
contract,  wherein  the  laborer,  who  possesses  naught  but  his  labor, 
agrees  with  the  owner  of  the  means  of  production,  who  is  on  that 
account  the  director  of  production,  to  undertake  to  render  a  certain 
amount  of  work  in  return  for  a  certain  amount  of  pay. 

When  we  remember  that  all  production  depends  on  the  com- 
bination of  labor  and  the  material  means  of  production,  then  the 
capitalist  system  of  production  differs  in  the  first  instance  from 
other  systems  in  that  the  two  factors  of  production  are  represented 
by  two  separate  groups,  which  must  meet  and  combine  if  a  useful 
product  is  to  ensue.    In  this  the  capitalist  system  differs,  from,  let 

'Adapted  from  Socialism  and  the  Social  Movement  3-8.  Published  by 
E.  P.  Dutton  &  Co.  (1908). 


58o  CURRENT  ECONOMIC  PROBLEMS 

US  say,  the  craft  organization  of  industry,  where  the  laborers  were 
at  the  same  time  the  owners  of  the  means  of  production.  But  it  dif- 
fers likewise  from  slavery  in  that  in  the  capitalist  system  the  com- 
bination of  the  two  groups  comes  about  by  free  contract  in  what  is 
known  as  the  wages  contract. 

The  capitalist  organization  of  society  is  characterized  by  the 
race  for  profit  and  by  a  peculiar  form  of  mental  activity  in  individ- 
uals which  I  call  "economic  rationalism."  All  economic  activities 
are  at  bottom  directed  towards  the  increase  of  the  money  which  is 
put  into  production,  or,  in  technical  language,  towards  the  profitable 
investment  of  capital.  To  this  end,  all  the  thoughts  of  the  capital- 
ists or  owners  of  the  means  of  production,  or  of  agents  paid  by 
them,  are  occupied  day  and  night  in  an  almost  feverish  restlessness 
in  order  to  bring  about  the  most  practical  and  rational  shaping  of 
economic  and  technical  processes. 

The  social  class  which  stands  for  the  interests  of  the  capitalist 
system  is  the  bourgeoisie,  or  middle  class.  It  is  made  up,  in  the 
first  place,  of  capitalist  undertakers,  and  in  the  second,  of  a  large 
number  of  people  whose  interests  are  similar  to  those  of  the  capital- 
ist undertakers.  I  am  thinking  of  the  following  elements:  (i) 
All  those  who  are  economically  independent  (or  who  would  like  to 
be  so),  and  are  intent  on  profit-making,  and  who,  moreover,  desire 
a  free  legal  system  favorable  to  profit-making.  That  would  include 
many  shopkeepers,  property-owners,  agents,  stock-jobbers,  and  so 
on,  and  also  the  more  modern  of  peasant  proprietors.  (2)  All 
those  who  are  not  economically  independent,  but  are  associated  with 
the  capitalist  undertaker  in  his  activities,  mostly  as  his  representa- 
tives, and  who,  as  a  rule,  participate  in  his  economic  success.  That 
would  include  paid  directors  of  companies,  managers,  foremen  in 
large  businesses,  and  people  like  them. 

The  class  at  the  opposite  pole  to  this — the  one  cannot  be  thought 
of  without  the  other — I  have  called  the  proletariat.  In  order  to  get 
a  true  conception  of  this  class,  we  must  free  ourselves  from  the  pic- 
ture of  a  ragged  crowd  which  the  term  brought  to  mind  before  we 
read  Karl  Marx.  The  term  "proletariat"  is  now  used  in  a  technical 
sense  to  describe  that  portion  of  the  population  which  is  in  the  serv- 
ice of  capitalist  undertakers  in  return  for  wages,  and  elements  akin 
to  them. 

The  free  wage-earners  form  the  bulk  of  this  class — all  such  per- 
sons as  are  employed  in  capitalist  undertakings,  leaving  out,  of 
course,  those  mentioned  above  as  belonging  to  the  bourgeoisie  be- 
cause their  interests  are  bound  up  with  the  capitalist  system. 


TRADE  UNIONISM  581 

I  have  already  pointed  out  that  in  order  to  get  a  true  concep- 
tion of  the  proletariat  we  must  give  up  the  idea  of  a  ragged  crowd. 
Indeed,  the  life  of  the  proletarian  is  not  always  intolerable.  Abso- 
lute distress  is  in  no  way  a  special  characteristic  of  the  class,  though, 
to  be  sure,  there  are  within  it  innumerable  instances  of  want.  But 
few  proletarians  are  as  badly  off  as  the  Russian  peasant,  or  the 
Chinese  coolie,  or  the  Irish  tenant,  none  of  whom  belong  to  the 
proletariat.  Many  a  wage-earner,  even  in  Europe,  earns  more  than 
a  university  teacher,  and  in  America  the  average  income  of  this 
class  falls  not  much  below  the  maximum  salary  of  an  extraordinary 
professor  in  Prussia. 

284.    The  Historical  Basis  of  Trade  Unionism' 

BY  SIDNEY  AND  BEATRICE  WEBB 

The  Trade  Union  arose,  not  from  any  particular  institution, 
but  from  every  opportunity  for  the  meeting  together  of  wage- 
earners  of  the  same  trade.  Adam  Smith  remarked  that  "people  of 
the  same  trade  seldom  meet  together,  even  for  merriment  and  di- 
version, but  the  conversation  ends  in  a  conspiracy  against  the  pub- 
lic, or  in  some  contrivance  to  raise  prices."  And  there  is  actual 
evidence  of  the  rise  of  one  of  the  oldest  Trade  Unions  out  of  a 
gathering  of  the  journeymen  "to  take  a  social  pint  of  porter  to- 
gether." More  often  it  is  a  tumultuous  strike  out  of  which  grows 
a  permanent  organization.  Instances  are  on  record  in  which  a 
number  of  laborers  who  have  become  accustomed  to  visit  public 
houses  have  become  the  nucleus  of  organization.  More  than  once 
the  journeymen  in  a  particular  trade  declared  that,  "It  has  been  an 
ancient  custom  in  the  kingdom  of  Great  Britain  for  divers  Artists 
to  meet  together  and  unite  themselves  into  societies  to  promote 
Amity  and  true  Christian  Charity,"  and  established  a  sick  and 
funeral  club,  which  invariably  has  proceeded  to  discuss  the  rate 
of  wages,  and  insensibly  has  passed  into  a  trade  union  with  friendly 
benefits.  And  if  the  trade  is  one  in  which  the  members  travel  the 
result  has  been  a  National  Trade  Union. 

But  this  does  not  explain  why  the  continuous  organizations  of 
wage-workers  came  as  late  as  the  eighteenth  century?  The  essen- 
tial cause  of  this  was  the  revolution  in  industry  which  came  at 
this  time.  When  such  unions  arose,  the  great  mass  of  the  work- 
ers had  ceased  to  be  independent  producers,  and  had  passed  into 
the  condition  of  life-long  wage-earners.  Such  unions  came  after 
"the  definite  separation  between  the  functions  of  the  capitalist  and. 

'Adapted  from  The  History  of  Trade  Unionism,  21-37.  Published  by 
Longmans,  Green.  &  Co.  (1804)- 


582  CURRENT  ECONOMIC  PROBLEMS 

the  workman,  or  between  the  direction  of  industrial  operations  and 
their  execution  in  detail." 

It  is  often  assumed  that  the  divorce  of  the  manual  worker  from 
the  ownership  of  his  tools  resulted  from  the  introduction  of  ma- 
chinery and  the  factory  system.  Were  this  true,  we  should  not  find 
Trade  Unions  earlier  than  factories.  Yet  such  combinations  in 
England  preceded  the  factory  system  by  half  a  century,  and  oc- 
curred in  trades  carried  on  exclusively  by  hand  labor.  Some  crafts 
lent  themselves  to  an  advantageous  division  of  labor.  Among  these 
there  is  particularly  to  be  mentioned  that  of  tailoring.  Because  of 
the  special  skill  required  for  tailoring  for  rich  customers,  the  most 
proficient  tailors  were  separated  from  the  rest  of  the  journeymen, 
and  became  practically  a  separate  social  class.  This  differentiation 
was  promoted  by  the  increasing  need  of  capital  for  successfully 
beginning  business  in  the  better  quarters  of  the  metropolis.  By 
1700  we  find  the  typical  journeyman  tailor  in  London  a  lifelong 
wage-worker.  It  is  not  surprising,  therefore,  that  one  of  the  earl- 
iest instances  of  permanent  Trade  Unionism  occurred  in  that  trade. 
Another  instance  is  that  of  the  woolen  workers  in  the  West  of 
England.  Again,  it  is  not  peculiar  that  in  the  year  1790  the  Shef- 
field employers  found  themselves  obliged  to  take  concerted  action 
against  the  "scissors-grinders  and  other  workmen  who  have  en- 
tered into  unlawful  combinations  to  raise  the  price  of  labor."  '  But 
the  cardinal  examples  of  the  connection  of  Trade  Unionism  with 
the  divorce  of  the  worker  from  the  instruments  of  production  is 
seen  in  the  rapid  rise  of  trade  combinations  on  the  Introduction  of 
the  factory  system. 

It  is  easy  to  understand  how  the  massing  together  in  factories 
of  regiments  of  men,  all  engaged  in  the  same  trade,  facilitated  and 
promoted  the  formation  of  workmen's  societies.  But  the  rise  of 
permanent  trade  combinations  is  to  be  ascribed  to  the  definite  separ- 
ation between  the  functions  of  the  capitalist  entrepreneur  and  the 
manual  worker.  It  has  become  a  commonplace  of  Trade  Unionism 
that  only  in  those  industries  in  which  the  worker  has  ceased  to  be 
concerned  in  the  profits  of  buying  and  selling  can  effective  and 
stable  trade  organizations  be  maintained. 

285.     The  Organization  of  the  Ill-paid  Classes" 

BY  CHARLIES  H.  COOLEY 

It  is  quite  apparent  that  an  organized  and  intelligent  class-con- 
§ciousness  in  the  hand-woricing  pfeopJe  is  one  of  the  primary  needs 

■Adapted  from  Social  Organisation,  284-289.  Copyright  by  Charles 
Scribner's  Sons  (1909). 


TRADE  UNIONISM  583 

of  a  democratic  society.  In  so  far  as  this  part  of  the  people  is 
lacking  in  a  knowledge  of  its  situation  and  in  the  practice  of  or- 
derly self-assertion,  a  real  freedom  will  also  be  lacking,  and  we 
shall  have  some  kind  of  subjection  in  its  place;  freedom  being  im- 
possible without  group  organizatioh.  That  industrial  classes  exist 
cannot  be  well  denied,  and  existing  they  ought  to  be  conscious  and 
self -directing. 

The  most  obvious  need  of  class-consciousness  is  for  self-asser- 
tion against  the  pressure  of  other  classes,  and  this  is  both  most 
necessary  and  most  difficult  with  those  who  lack  wealth  and  the 
command  over  organized  forces  which  it  implies.  In  a  free  society, 
especially,  the  Lord  helps  those  who  help  themselves;  and  those 
who  are  weak  in  money  must  be  strong  in  union,  and  must  also 
exert  themselves  to  make  good  any  deficiency  in  leadership  that 
comes  from  ability  deserting  to  more  favored  classes. 

That  the  dominant  power  of  wealth  has  an  oppressive  action, 
for  the  most  part  involuntary,  upon  the  people  below,  will  hardly 
be  denied  by  any  competent  student.  The  industrial  progress  of 
our  time  is  accompanied  by  sufferings  that  are  involved  with  the 
progress.  These  sufferings  fall  mostly  upon  the  poorer  classes, 
while  the  rich  get  a  larger  share  of  the  increased  product  which 
the  progress  brings. 

Labor  unions  have  arisen  out  of  the  urgent  need  of  self-defence, 
not  so  much  against  deliberate  aggression  as  against  brutal  con- 
fusion and  neglect.  The  industrial  population  has  been  tossed 
about  on  the  swirl  of  economic  change  like  so  much  sawdust  on  a 
river,  sometimes  prosperous,  sometimes  miserable,  never  secure, 
and  living  largely  under  degrading,  inhuman  conditions.  Against 
this  state  of  things  the  higher  class  of  artisans  have  made  a  partly 
successful  struggle  through  co-operation  in  associations,  which, 
however,  include  much  less  than  half  of  those  who  might  be  ex- 
pected to  take  advantage  of  them.  That  they  are  an  effective 
means  of  class  self-assertion  is  evident  from  the  antagonism  they 
have  aroused. 

Besides  their  primary  function  of  group-bargaining,  unions  are 
performing  a  variety  of  services  hardly  less  important  to  their  mem- 
bers and  to  society.  In  the  way  of  influencing  legislation  they  have 
probably  done  more  than  all  other  agencies  together  to  combat 
child-labor,  excessive  hours,  and  other  inhuman  and  degrading 
kinds  of  work,  also  to  provide  for  safeguards  against  accident,  for 
proper  sanitation,  for  factories  and  the  like.  In  this  field  their 
work  is  as  much  defensive  as  aggressive,  since  employing  interests, 
on  the  other  side,  are  constantly  influencing  legislation  and  admin- 
istration to  their  own  advantage. 


584  CURRENT  ECONOMIC  PROBLEMS 

Their  functions  as  spheres  of  fellowship  and  self-development 
is  equally  vital  and  less  understood.  To  have  a  we-feeling,  to  live 
shoulder  to  shoulder  with  one's  fellows,  is  the  only  huinan  life; 
we  all  need  it  to  keep  us  from  selfishness,  sensuality,  and  despair, 
and  the  hand-worker  needs  it  even  more  than  the  rest  of  us.  Usu- 
ally without  pecuniary  resources  and  insecure  of  his  job  and  his 
home,  he  is,  in  isolation,  miserably  weak  and  in  a  way  to  be  cowed. 
The  union  makes  him  a  part  of  a  whole,  one  of  a  fellowship.  More- 
over, the  life  of  labor  unions  and  other  class  associations,  through 
the  training  which  it  gives  in  democratic  organizations  and  dis- 
cipline, is  perhaps  the  chief  guarantee  of  the  healthy  political  devel- 
opment of  the  handworking  class.  That  their  members  get  this 
training  will  be  evident  to  anyone  who  studies  their  working,  and 
it  is  not  apparent  that  they  would  get  it  in  any  other  way. 

In  general  no  sort  of  persons  mean  better  than  hand-laboring 
men.  They  are  simple,  honest  people,  as  a  rule,  with  that  bent  to- 
ward integrity  which  is  fostered  by  working  in  wood  and  iron  and 
often  lost  in  the  subtleties  of  business.  Moreover,  their  experience 
is  such  as  to  develop  a  sense  of  the  brotherhood  of  man  and  a 
desire  to  realize  it  in  institutions.  Not  having  enjoyed  the  artificial 
support  of  accumulated  property,  they  have  the  more  reason  to 
know  the  dependence  of  each  on  his  fellows.  Occasionally  out- 
breaks of  violence  alarm  us  and  call  for  prompt  enforcement  of 
law,  but  are  not  a  serious  menace  to  society,  because  general  senti- 
ment and  all  established  interests  are  against  them ;  while  the  subtle, 
respectable,  systematic  corruption  by  the  rich  and  powerful  threat- 
ens the  very  being  of  democracy. 

The  most  deplorable  fact  about  labor  unions  is  that  they  em- 
brace so  small  a  proportion  of  those  who  need  their  benefits.  How 
far  into  the  shifting  masses  of  unskilled  labor  effective  organization 
can  extend  only  time  will  show. 

286.     Types  of  Unionism* 

BY  ROBERT  F.  HOXIE 

A  penetrating  study  of  the  union  situation  past  and  present  seems 
to  warrant  the  recognition  of  functional  types  quite  distinct  in  their 
general  characteristics.  It  is  true  that  these  functional  types  do  not 
in  practice  represent  exactly  and  exclusively  the  ideals  and  activities 
of  any  particular  union  organization  or  group.    That  is  to  say,  no 

'Adapted  from  "Trade  Unionism  in  the  United  States :  General  Char- 
acter and  Types,"  in  the  Journal  of  Political  Economy,  XXII,  211-216  (1914). 


TRADE  UNIONISM  585 

union  organization  functions  strictly  and  consistently  according  to 
type.  Yet  as  representing  fairly  distinct  alternative  programs  of 
union  action  and  as  guides  to  the  essential  character  and  significance 
of  the  diverse  organizations  and  groups  included  in  the  heterogene- 
ous union  complex,  these  functional  types  apparently  do  exist  and 
are  of  the  most  vital  concern  to  the  student  of  unionism.  There  are 
seemingly  four  of  these  distinct  types,  two  of  which  present  dual 
variations. 

The  first  and  perhaps  most  clearly  recognizable  functional  type 
may  be  termed  business  unionism.  Business  unionism  appears  most 
characteristically  in  the  programs  of  local  and  national  craft  and 
compound  craft  organizations.  It  is  essentially  trade-conscious 
rather  than  class-conscious.  That  is  to  say,  it  expresses  the  view- 
point and  interests  of  the  workers  in  a  craft  or  industry  rather  than 
those  of  the  working  class  as  a  whole.  It  aims  chiefly  at  more  here 
and  now  for  the  organized  workers  of  the  craft  or  industry,  in  terms 
mainly  of  higher  wages,  shorter  hours,  and  better  working  condi- 
tions, regardless  for  the  most  part  of  the  welfare  of  the  workers 
outside  the  particular  organic  group,  and  regardless  in  general  of 
political  and  social  considerations  except  in  so  far  as  these  bear 
directly  upon  its  own  economic  ends.  It  is  conservative  in  the  sense 
that  it  professes  belief  in  natural  rights  and  accepts  as  inevitable,  if 
not  as  just,  the  existing  capitalistic  organization  and  the  wage  sys- 
tem as  well  as  existing  property  rights  and  the  binding  force  of  con- 
tract. It  regards  unionism  mainly  as  a  bargaining  institution  and 
seeks  its  ends  chiefly  through  collective  bargaining  supported  by 
such  methods  as  experience  from  time  to  time  indicates  to  be  ef- 
fective in  sustaining  and  increasing  its  bargaining  power.  Thus  it 
is  likely  to  be  exclusive,  that  is,  to  limit  its  membership  by  means 
of  the  apprenticeship  system  and  high  initiation  fees  and  dues,  to 
the  more  skilled  workers  in  the  craft  or  industry  or  even  to  a  por- 
tion of  these.  In  method,  business  unionism  is  prevailingly  tem- 
perate and  economic.  It  favors  voluntary  arbitration,  deprecates 
■  strikes,  and  avoids  political  action,  but  it  will  refuse  arbitration  and 
resort  to  strikes  and  politics  when  such  action  seems  best  calculated 
to  support  its  bargaining  efforts  and  increase  its  bargaining  power. 
This  type  of  unionism  is  perhaps  best  represented  in  the  programs 
of  the  railway  brotherhoods. 

The  second  union  functional  type  seems  best  designated  by  the 
terms  friendly  or  uplift  unionism.  Uplift  unionism,  as  its  name  in- 
dicates, is  characteristically  idealistic  in  its  viewpoint.  It  may  be 
trade-conscious  or  broadly  class-conscious,  and  at  times  even  claims 


S86  CURRENT  ECONOMIC  PROBLEMS 

to  think  and  act  in  the  interest  of  society  as  a  whole.  Essentially 
it  is  conservative  and  law-abiding.  It  aspires  chiefly  to  elevate  the 
moral,  intellectual,  and  social  life  of  the  worker,  to  improve  the  con- 
ditions under  which  he  works,  to  raise  his  material  standards  of  liv- 
i"&>  give  him  a  sense  of  personal  worth  and  dignity,  secure  for  him 
the  leisure  for  culture,  and  insure  him  and  his  family  against  the  loss 
of  a  decent  livelihood  by  reason  of  unemployment,  accident,  disease, 
or  old  age.  In  method,  this  type  of  unionism  employs  collective  bar- 
gaining but  stresses  mutual  insurance,  and  drifts  easily  into  po- 
litical action  and  the  advocacy  of  co-operative  enterprises,  profit- 
sharing,  and  other  idealistic  plans  for  social  regeneration.  The 
nearest  approach  in  practice  to  uplift  unionism  is  perhaps  to  be  found 
in  the  program  of  the  Knights  of  Labor. 

As  a  third  distinct  functional  type,  we  have  what  most  appropri- 
ately may  be  called  revolutionary  unionism.  Revolutionary  union- 
ism, as  the  term  implies,  is  extremely  radical  both  in  viewpoint  and 
in  action.  It  is  distinctly  class-conscious  rather  than  trade-con- 
scious. That  is  to  say,  it  asserts  the  complete  harmony  of  interests 
of  all  wage  workers  as  against  the  representatives  of  the  employing 
class  and  seeks  to  unite  the  former,  skilled  and  unskilled  together, 
into  one  homogeneous  fighting  organization.  It  repudiates,  or  tends 
to  repudiate,  the  existing  institutional  order  and  especially  individual 
ownership  of  productive  means,  and  the  wage  system.  It  looks 
upon  the  prevailing  codes  of  right  and  rights,  moral  and  legal,  as  in 
general  fabrications  of  the  employing  class  designed  to  secure  the 
subjection  and  to  further  the  exploitation  of  the  workers.  In  gov- 
ernment it  aspires  to  be  democratic,  striving  to  make  literal  appli- 
cation of  the  phrase  vox  pppuli,  vox  Dei. 

Of  this  revolutionary  type  of  unionism  there  are  apparently  two 
distinct  varieties.  The  first  finds  its  ultimate  ideal  in  the  socialistic 
state  and  its  ultimate  means  in  invoking  class  political  action.  For 
thft  present  it  does  not  entirely  repudiate  collective  bargaining  or 
the  binding  force  of  contract,  but  it  regards  these  as  temporary  ex- 
pedients. It  would  not  now  amalgamate  unionist  and  socialist  or- 
ganizations, but  would  have  them  practically  identical  in  member- 
ship and  entirely  harmonious  in  action.  In  short,  it  looks  upon 
unionism  and  socialism  as  the  two  wings  of  the  working-class  move- 
ment. The  second  variety  repudiates  altogether  socialism,  political 
action,  collective  bargaining,  and  contract.  Socialism  is  to  it  but 
another  form  of  oppression, 'political  action  a  practical  delusion,  col- 
lective bargaining  and  contract  schemes  of  the  oppressor  for  pre- 
venting the  united  and  immediate  action  of  the  workers.    It  looks 


TRADE  UNIONISM  587 

forward  to  a  society  based  upon  free  industrial  association,  aiid 
finds  its  legitimate  means  in  agitation  rather  than  in  methods  which 
look  to  immediate  betterment.  Direct  action  and  sabotage  are  its 
accredited  weapons,  and  violence  its  habitual  resort.  These  vari- 
eties of  the  revolutionary  type  may  be  termed  respectively  socialistic 
and  quasi-anarchistic  unionism.  The  former  is  perhaps  most  nearly 
represented  in  the  United  States  by  the  Western  Federation  of 
Miners,  the  latter  by  the  Industrial  Workers  of  the  World.  • 

Finally  in  the  union  complex  it  seems  possible  to  distinguish  a 
mode  of  action  sufficiently  definite  in  its  character  and  genesis  to 
warrant  the  designation  predatory  unionism.  This  type,  if  it  be 
truly  such,  cannot  be  set  apart  on  the  basis  of  any  ultimate  social 
ideals  or  theory.  It  may  be  essentially  conservative  or  radical,  trade- 
conscious  or  class-conscious.  It  appears  to  aim  solely  at  immediate 
ends,  and  its  methods  are  wholly  pragmatic.  In  short,  its  distin- 
guishing characteristic  is  the  ruthless  pursuit  of  the  thing  in  hand 
by  whatever  means  seem  most  appropriate  at  the  time  regardless 
of  ethical  and  legal  codes  or  the  effect  upon  those  outside  its  own 
membership.  It  may  employ  business,  friendly,  or  revolutionary 
methods.  Generally  its  operations  are  secret  and  apparently  it 
sticks  at  nothing. 

Of  this  assumed  union  type  also  there  appears  to  be  two  vari- 
eties. The  first  may  be  termed  hold-up  unionism.  This  variety  is 
usiially  to  be  found  in  large  industrial  centers  masquerading  as  busi- 
ness unionism.  In  outward  appearance  it  is  conservative;  it  pro- 
fesses a  belief  in  harmony  of  interests  between  employer  and  em- 
ployee ;  it  claims  to  respect  the  force  of  contract ;  it  operates  openly 
through  collective  bargaining,  and  professes  regard  for  law  and 
order.  In  reality  it  has  no  abiding  principles  and  no  real  concern 
for  the  rights  or  welfare  of  outsiders.  Prevailingly  it  is  exclusive 
and  monopolistic.  Generally  it  is  boss-ridden  and  corrupt,  the  mem- 
bership for  the  most  part  being  content  to  follow  blindly  the  instruc- 
tions of  the  leaders  so  long  as  they  "deliver  the  goods."  Frequently 
it  enters  with  the  employers  of  the  group  into  a  double-sided  mon- 
opoly intended  to  eliminate  both  capitalistic  and  labor  competition 
and  to  squeeze  the  consuming  public.  With  the  favored  employers 
it  bargains  not  only  for  the  sale  of  its  labor  but  for  the  destruction 
of  the  business  of  rival  employers  and  the  exclusion  of  rival  work- 
men from  the  craft  or  industry.  On  the  whole  its  methods  are  a 
mixture  of  open  bargaining  coupled  with  secret  bribery  and  violence. 
This  variety  of  unionism  has  been  exemplified  most  frequently 
among  the  building  trades  organizations  under  the  leadership  of  men 
like  the  late  notorious  "Skinney"  Madden. 


S88  CURRENT  ECONOMIC  PROBLEMS 

The  second  variety  of  predatory  labor  organization  may  be 
called,  for  want  of  a  better  name,  guerilla  unionism.  This  variety 
resembles  the  first  in  the  absence  of  fixed  principles  and  in  the  ruth- 
less pursuit  of  immediate  ends  by  means  of  secret  and  violent  meth- 
ods. It  is  to  be  distinguished  from  hold-up  unionism,  however,  by 
the  fact  that  it  operates  always  directly  against  its  employers,  never 
in  combination  with  them,  and  that  it  cannot  be  bought  ofif.  It  is 
secret,  violent,  and  ruthless,  seemingly  because  it  despairs  of  attain- 
ing what  it  considers  to  be  legitimate  ends  by  business,  uplift,  or 
revolutionary  methods.  This  union  variant  has  been  illustrated  re- 
cently in  the  campaign  of  destruction  carried  on  by  the  Bridge  and 
Structural  Iron  Workers. 

B.     THE  VIEWPOINTS  OF  LABORER  AND  CAPITALIST 
287.     The  Sons  of  Martha 

BY  RUDYARD  KIPLING 

The  Sons  of  Mary  seldom  bother,  for  they  have  inherited  that  good 

part, 
But  the  Sons  of  Martha  favor  their  mother  of  the  careful  soul  and 

the  troubled  heart; 
And  because  she  lost  her  temper  once,  and  because  she  was  rude 

to.  the  Lord,  her  guest, 
Her  sons  must  wait  upon  Mary's  sons — world  without  end,  reprieve 

or  rest. 

It  is  their  care  in  all  the  ages  to  take  the  buffet  and  cushion  the 

shock ; 
It  is  their  care  that  the  gear  engages,  it  is  their  care  that  the  switches 

lock: 
It  is  their  care  that  wheels  run  truly;  it  is  their  care  to  embark 

and  entrain. 
Tally,  transport,  and  deliver  duly  the  Sons  of  Mary  by  land  and 

main. 

They  say  to  the  mountain,  "Be  ve  removed !"  They  say  to  the  lesser 

floods,  "Run  dry!" 
Under  their  rods  are  the  rocks  reproved — they  are  not  afraid  of 

that  which  is  nigh. 
Then  do  the  hilltops  shake  to  the  summit;  then  is  the  bed  of  the 

deep  laid  bare. 
That  the  Sons  of  Mary  may  overcome  it,  pleasantly  sleeping  and 

unaware. 


TRADE  UNIONISM  589 

They  finger  Death  at  their  glove's  end  when  they  piece  and  repiece 

the  living  wires ; 
He  rears  against  the  gates  they  tend ;  they  feed  him  hungry  behind 

their  fires. 
Early  at  dawn  ere  men  see  clear  they  stumble  into  his  terrible  stall, 
And  bait  him  forth  like  a  haltered  steer  and  goad  and  turn  him  till 

evenfall. 

To  these  from  birth  is  belief  forbidden;  from  these  till  death  is 

relief  afar — 
They  are  concerned  with  matters  hidden — under  the  earth  line  their 

altars  are: 
The  secret  fountains  to  follow  up,  waters  withdrawn  to  restore  to 

the  mouth, 
Yea,  and  gather  the  floods  as  in  a  cup,  and  pour  them  again  at  a 

city's  drouth. 

They  do  not  preach  that  their  God  will  rouse  them  a  little  before  the 

nuts  work  loose; 
They  do  not  teach  that  His  Pity  allows  them  to  leave  their  work 

whenever  they  choose. 
As  in  the  thronged  and  lightened  ways,  so  in  the  dark  and  the  desert 

they  stand. 
Wary  and  watchful  all  their  days,  that  their  brethren's  days  may  be 

long  in  the  land. 

Lift  ye  the  stone,  or  cleave  the  wood,  to  make  a  path  more  fair  or 

flat, 
Lo!  it  is  black  already  with  the  blood  Sons  of  Martha  spilled  for 

that, 
Not  as  a  ladder  from  earth  to  heaven,  not  as  an  altar  to  any  creed, 
But  simple  service,  simply  given  to  his  own  kind,  is  their  common 

need. 

And  the  Sons  of  Mary  smile  and  are  blessed — they  know  the  angels 

are  on  their  side ; 
They  know  in  them  is  the  grace  confessed,  and  for  them  are  the 

mercies  multiplied ; 
They  sit  at  the  feet  and  they  hear  the  word — they  know  how  truly 

the  promise  runs ; 
They  have  cast  their  burden  upon  the  Lord — and  the  Lord,  He  lays 

it  on  Martha's  sons. 


590  CURRENT  ECONOMIC  PROBLEMS 

288.    The  Viewpoint  of  the  Trade  Unionists' 

BY  ROBERT  F.   HOXIE 

Among  the  main  charges  brought  against  the  unionist  by  the 
employer  are  these:  first,  that  he  refuses  to  recognize  the  generally 
conceded  rights  of  the  employing  class ;  secondly,  that  he  does  not 
recognize  the  sacredness  of  contract ;  thirdly,  that  while  he  is  strug- 
gling to  obtain  higher  wages  and  shorter  hours  of  work,  he  per- 
sistently attempts  to  reduce  the  efficiency  of  labor  and  the  extent 
of  the  output.  Assuming  these  charges  to  be  substantially  correct, 
let  us  in  the  case  of  each  seek  without  prejudice  to  discover  the 
real  grounds  of  the  laborer's  attitude  and  action. 

I.  The  "rights"  which  the  employer  claims,  and  which  the 
unionist  is  supposed  to  deny,  may  perhaps  be  summarily  expressed 
in  the  phrase,  "the  right  of  the  employer  to  manage  his  own  busi- 
ness." To  the  employer  it  is  a  common-sense  proposition  that  his 
business  is  his  own.  To  him  this  is  not  a  subject  of  argument.  It 
is  a  plain  matter  of  fact  and  carries  with  it  the  obvious  rights  of 
management  unhampered  by  the  authority  of  outside  individuals. 
But  to  the  laborer  it  is  different. 

The  laborer,  like  all  the  rest  of  us,  is  the  product  of  heredity 
and  environment.  That  is  to  say,  he  is  not  rational  in  the  sense 
that  his  response  to  any  given  mental  stimulus  is  invariable.  On 
the  contrary,  like  the  rest  of  us,  he  is  a  bundle  of  notions,  preju- 
dices, beliefs,  unconscious  preconceptions  and  postulates,  the  pro- 
duct of  his  peculiar  heredity  and  environment.  These  unconscious 
and  subconscious  psychic  elements  necessarily  mix  with  and  color 
his  immediate  activity.  What  is  or  has  been  outside  his  ancestral 
and  personal  environment  must  be  either  altogether  incomprehen- 
sible to  him,  or  else  must  be  conceived  as  quite  like  or  analogous 
to  that  which  has  already  been  mentally  assimilated.  He  cannot 
comprehend  what  he- has  not  experienced. 

Now,  it  is  well  known  that  the  environment  of  the  laborer 
under  the  modern  capitalistic  system  has  tended  to  become  predom- 
inantly one  of  physical  force.  He  has  been  practically  cut  off  from 
all  knowledge  of  market  and  managerial  activities.  The  ideals, 
motives,  and  cares  of  property-ownership  are  becoming  foreign 
to  him.  More  and  more,  in  his  world,  spiritual  forces  are  giving 
way  to  the  apparent  government  and  sanction  of  blind  physical 
causation.  In  the  factory  and  the  mine  spiritual,  ethical,  custo- 
mary, and  legal  forces  and  authorities  are  altogether  in  the  back- 

*Adapted  from  "The  Trade-Union  Point  of  View,"  in  the  Journal  of  Po- 
litical Economy,  XV,  345-356  (1907). 


TRADE  UNIONISM  591 

ground.  Everything  to  the  worker,  even  his  own  activity,  is  the 
outcome  of  physical  force,  apparently  undirected  and  unchecked 
by  the  spiritual  element.  The  blast  shatters  the  rock,  and  whatever 
of  flesh  and  blood  is  in  range  is  also  torn  in  pieces.  The  presence 
and  the  majesty  of  the  law  and  contract  are  altogether  ineffective 
in  the  face  of  physical  forces  let  loose  by  the  explosion.  In  like 
manner  the  knife  cuts,  the  weight  crushes,  the  wheel  mangles  the 
man  and  the  material  with  equal  inevitableness.  No  sanction,  re- 
ligious, moral,  customary,  or  legal,  is  there.  Even  outside  tlie 
strictly  mechanical  occupations  the  machine  and  the  machine  pro- 
cess are  coming  to  dominate  the  worker,  and  the  growth  in  size 
of  the  industrial  unit  renders  his  economic  relationships  ever  more 
impersonal — withdraws  farther  from  his  knowledge  the  directing 
and  controlling  spiritual  forces.  The  laborer  thus  environed  in- 
evitably tends  to  look  upon  physical  force  as  the  only  efficient  cause 
and  the  only  legitimizing  sanction.  He  tends  to  become  mentally 
blind  to  spiritual,  legal,  contractual,  and  customary  forced  and  their 
effects. 

To  the  laborer,  as  the  product  of  this  environment,  the  pro- 
prietary and  managerial  claims  of  the  employer  tend  to  become,  of 
necessity,  simply  incomprehensible.  The  only  kind  of  production 
which  he  can  recognize  is  the  material  outcome  of  physical  force — 
the  physical  good.  Value  unattached  to  and  incommensurable  with 
the  physical  product  or  means  of  production  is  to  him  merely  an  in- 
vention of  the  employing  class  to  cover  up  unjust  appropriation. 
He  knows  and  can  know  nothing  about  the  capitalized  value  of 
managerial  ability  or  market  connections.  To  him,  then,  the  im- 
portant point  is:  By  what  physical  force  are  these  things  made 
what  they  are?  It  is  a  matter  of  simple  observation  that  the  em- 
ployer exerts  no  direct  or  appreciable  physical  force  in  connection 
with  the  prodtictive  process.  Therefore,  in  the  eyes  of  the  laborer, 
he  simply  cannot  have  any  natural  rights  of  proprietorship  and 
management  based  on  productive  activity. 

In  the  same  way  all  other  grounds  on  which  ownership  and  the 
managerial  rights  of  the  employer  are  based  have  become  incon- 
clusive to  the  laborer.  Appropriation,  gift,  inheritance,  saving,  con- 
tract, in  themselves  do  not  produce  any  physical  effect*  on  the  only 
goods  which  he  can  recognize.  Therefore  they  cannot  be  used  to 
prove  property  in  any  just  or  natural  sense.  They  hold  in  practice 
simply  because  back  of  them  is  the  physical  force  of  the  police 
and  army  established  and  maintained  by  the  middle  class  to  protect 
its  proprietary  usurpations.  Thus  the  whole  claim  of  the  em- 
ployer to  the  right  to  manage  his  own  business  to  suit  himself 


592  CURRENT  ECONOMIC  PROBLEMS 

has  become  and  is  becoming  in  a  way  incomprehensible  to  the 
laborer  on  grounds  of  natural  equity.  At  the  same  time,  by  virtue 
of  habit  and  the  sanction  of  physical  force  as  a  productive  agent,  he 
sees  himself  ever  more  clearly  the  rightful  proprietor  of  his  job  and 
of  the  products  of  it.  All  this  is  the  natural  and  inevitable  outcome 
of  the  conditions  under  which  he  lives  and  toils. 

2.  The  unionist  laborer  does  not  recognize  the  sacredness  of 
contract.  This  is,  if  anything,  a  more  serious  charge  than  the  pre- 
ceding one. 

As  a  matter  of  fact,  the  laborer  is  so  circumstanced  that  obli- 
gations of  contract  with  the  employer  must  appear  secondary  in  im- 
portance to  his  obligations  to  fellow-workers.  This  is  not  difficult 
to  show.  Ever  since  the  establishment  of  the  money-wage  system, 
the  everyday  experience  of  the  laborer  has  been  teaching  him  the 
supreme  importance  of  mutuality  in  his  relations  with  his  immediate 
fellow-workers.  The  money  payment,  related  not  to  the  physical 
result  of  his  efforts,  but  to  its  economic  importance,  has  been  blot- 
ting out  for  him  any  direct  connection  between  effort  and  reward. 
Experience  has  taught  him  to  look  upon  his  labor  as  one  thing  in 
its  effects  and  another  thing  in  its  reward.  As  a  thing  to  be  re- 
warded he  has  learned  to  consider  it  a  commodity  in  the  market. 
As  such  he  knows  that  it  is  paid  for  at  competitive  rates.  He  has 
learned  that,  if  he  undercuts  his  fellow,  prompt  retaliation  follows, 
to  the  detriment  of  both,  and  he  has  learned  that  combination  with 
his  fellow  results  in  better  immediate  conditions  for  both. 

The  worker  does  not,  of  course,  look  far  beyond  the  immediate 
results.  In  severing  the  obvious  connection  between  his  task  and 
the  complete  product,  in  removing  from  him  all  knowledge  of  the 
general  conduct  and  condition  of  the  business,  in  paying  to  him 
a  fixed  wage  regardless  of  the  outcome  of  the  particular  venture, 
and  in  paying  him  a  wage  never  much  in  excess  of  his  habitual 
standard  of  living,  the  factory  and  wage  system  have  accustomed 
him  to  a  hand-to-mouth  existence,  have  barred  him  from  all  the 
training  effects  of  property-ownership,  and  have  atrophied  his 
faculties  of  responsibility  and  foresight.  Moreover,  it  is  not  to  be 
expected  that  today's  empty  stomach  will  be  comforted  by  tomor- 
row's hypothetical  bread,  least  of  all  by  bread  which  is  likely  to 
comfort  the  stomach  of  another.  Is  it  any  wonder,  then,  that  the 
laborer  does  not  and  that  he  cannot  follow  the  economist  in  his 
complicated  arguments  to  prove  that,  in  the  long  run  and  on  the 
whole,  the  keenest  competition  among  laborers  brings  the  highest 
rewards  ? 


TRADE  UNIONISM  593 

Proneness  to  breach  of  contract,  therefore,  is  seen  to  be  a  na- 
tural and  evitable  outcome  of  his  life  and  working  conditions. 

3.  The  third  charge  against  the  unionist  which  we  have  under- 
taken to  examine  states  that  while  he  is  struggling  for  increase 
of  wages  he  is  at  the  same  time  attempting  to  reduce  the  efficiency 
of  labor  and  the  amount  of  the  output.  In  other  words,  while  he 
is  calling  upon  the  employer  for  more  of  the  means  of  life  he  is 
doing  much  to  block  the  efforts  of  the  employer  to  increase  those 
means. 

There  is  no  doubt  that  this  charge  is  to  a  great  extent  true.  In 
reasoning  upon  this  matter  the  employer,  viewing  competitive  so- 
ciety as  a  whole,  assumes  that  actual  or  prospective  increase  in  the 
goods'  output  means  the  bidding-up  of  wages  by  employers  anxious 
to  invest  profitably  increasing  social  income.  It  follows  that  in 
competitive  society  laborers  as  a  whole  stand  to  gain  with  im- 
provements in  industrial  effort  and  process.  In  the  case  of  the  in- 
dividual competitive  establishment  it  is  clear  that  the  maximum 
income  is  ordinarily  to  be  sought  in  the  highest  possible  efficiency, 
resulting  in  increased  industrial  output.  At  least  this  is  true  where 
there  are  numerous  establishments  of  fairly  equal  capacity  pro- 
ducing competitively  from  the  same  market.  Under  such  circum- 
stances the  increased  output  of  any  one  establishment  due  to  "speed- 
ing up"  will  ordinarily  have  but  a  slight,  if  any,  appreciable  effect  on 
price.  Each  individual  entrepreneur,  therefore,  is  justified  in  as- 
suming a  fixed  price  for  his  product  and  in  reckoning  on  increase 
of  income  from  increase  of  efficiency  and  industrial  product.  Ap- 
parently it  rarely  occurs  to  the  employer  that  this  analysis  is  not 
complete.  Having  assumed  that  definite  laws  determine  the  man- 
ner in  which  income  is  shared  among  the  productive  factors,  he 
apparently  concludes,  somewhat  naively,  that  just  as  the  laborers 
in  society  will  in  the  aggregate  profit  by  increase  in  the  social  in- 
come, so  also  will  the  laborers  in  any  individual  establishment  profit 
by  increase  in  its  income. 

To  this  mode  of  reasoning,  and  to  the  conclusions  reached 
through  it,  the  unionist  takes  very  decided  exceptions.  To  the 
statement  that  labor  as  a  whole  stands  to  gain  through  any  increase 
in  the  social  dividend  he  returns  the  obvious  answer  thiat  labor  as  a 
whole  is  a  mere  academic  conception ;  that  labor  as  a  whole  may 
gain  while  the  individual  laborer  starves.  His  concern  is  with  his 
own  wage-rate  and  that  of  his  immediate  fellow-wori<ers.  He  has 
learned  the  lesson  of  co-operation  within  his  trade,  but  he  is  not 
yet  class-conscious.  In  answer  to  the  argument  based  on  the  in- 
dividual competitive  establishment  he  asserts  that  the  conditions 


594  CURRENT  ECONOMIC  PROBLEMS 

which  determine  the  income  of  the  establishment  are  not  the  same 
as  those  which  govern  the  wage-rate.  Consequently,  increase  in  the 
income  of  the  establishment  is  no  guarantee  of  increase  of  the 
wage-rate  of  the  worker  in  it.  Conversely,  increase  in  the  wage- 
rate  may  occur  without  increase  in  the  income  of  the  establishment. 
Indeed,  in  consequence  of  this  non-identity  of  the  conditions  gov- 
erning establishment  income  and  wage-rate,  increase  in  the  gross 
income  of  the  establishment  is  often  accompanied  by  decrease  in 
the  wage-rate,  and  the  wage-rate  is  often  increased  by  means  which 
positively  decrease  the  gross  income  of  the  establishment. 

The  laborer's  statements  in  this  instance  are  without  doubt  well- 
founded.  The  clue  to  the  whole  situation  is,  of  course,  found  in 
the  fact  that  the  wage-rate  of  any  class  of  laborers  is  not  determined 
by  the  conditions  which  exist  in  the  particular  establishment  in 
which  they  work,  but  by  the  conditions  which  prevail  in  their  trade 
or  "non-competing  group."  With  this  commonplace  economic  argu- 
ment in  mind,  the  reasonableness  of  the  unionist's  opposition  to 
speeding  up,  and  of  his  persistent  efforts  to  hamper  production,  at 
once  appears. 

289.     Articles  of  Faith 
a)     An  Economic  Creed^ 

The  National  Association  of  Manufacturers  of  the  United  States 
of  America  does  hereby  declare  that  the  following  principles  shall 
govern  the  Association  in  its  work  in  connection  with  the  problems 
of  labor: 

1.  Fair  dealing  is  the  fundamental  and  basic  principle  on 
which  relations  between  employes  and  employers  should  rest. 

2.  The  National  Association  of  Manufacturers  is  not  opposed 
to  organizations  of  labor  as  such,  but  it  is  unalterably  opposed  to 
boycotts,  black-lists  and  other  illegal  acts  of  interference  with  the 
personal  liberty  of  employer  and  employe. 

3.  No  person  should  be  refused  employment  or  in  any  way 
discriminated  against  on  account  of  membership  or  non-membership 
in  any  labor  organization,  and  there  should  be  no  discriminating 
against  or  interference  with  any  employe  who  is  not  a  member 
of  a  labor  organization  by  members  of  such  organizations. 

4.  With  due  regard  to  contracts,  it  is  the  right  of  the  employe 
to  leave  his  employment  whenever  he  sees  fit,  and  it  is  the  right  of 
the  employer  to  discharge  any  employe  when  he  sees  fit. 

•Resolutions  adopted  at  the  Eighth  Annual  Convention  of  the  National 
Association  of  Manufacturers,  New  Orleans,  April,  1903. 


TRADE  UNIONISM  595 

5.  Employers  must  be  free  to  employ  their  work  people  at 
wages  mutually  satisfactory,  without  interference  or  dictation  on 
the  part  of  individuals  or  organizations  not  directly  parties  to  such 
contracts. 

6.  Employers  must  be  unmolested  and  unhampered  in  the 
management  of  their  business,  in  determining  the  amount  and 
quality  of  their  product,  and  in  the  use  of  any  methods  or  systems 
of  pay  which  are  just  and  equitable. 

7.  In  the  interest  of  employes  and  employers  of  the  country, 
no  limitation  should  be  placed  upon  the  opportunities  of  any  person 
lo  learn  any  trade  to  which  he  or  she  may  be  adapted. 

8.  The  National  Association  of  Manufacturers  disapproves  ab- 
solutely of  strikes  and  lock-outs,  and  favors  an  equitable  adjust- 
ment of  all  differences  between  employers  and  employes  by  any 
amicable  method  that  will  preserve  the  rights  of  both  parties. 

9.  Employes  have  the  right  to  contract  for  their  services  in  a 
collective  capacity,  but  any  contract  that  contains  a  stipulation  that 
employment  should  be  denied  to  men  not  parties  to  the  contract 
is  an  invasion  of  the  constitutional  rights  of  the  American  work- 
man, is  against  public  policy,  and  is  in  violation  of  the  conspiracy 
laws.  This  Association  declares  its  unalterable  antagonism  to  the 
closed  shop  and  insists  that  the  doors  of  no  industry  be  closed 
against  American  workmen  because  of  their  membership  or  non- 
membership  in  any  labor  organization. 

10.  The  National  Association  of  Manufacturers  pledges  itself 
to  oppose  any  and  all  legislation  not  in  accord  with  the  foregoing 
declaration. 

h)    A  Political  Creed' 

Whereas,  The  National  Association  of  Manufacturers,  in  con- 
vention assembled  in  New  Orleans,  in  1903,  adopted,  declared  and 
promulgated  certain  principles  governing  the  work  of  the  associ- 
ation in  connection  \vith  problems  of  labor;  and 

Whereas,  The  past  decade  has  demonstrated  the  truth  of  these 
declared  principles ;  and 

Whereas,  During  the  past  ten  years  new  and  different  problems 
have  also  emerged,  affecting  our  governmental,  economic  and  in- 
dustrial society,  upon  which  we  deem  it  our  duty  at  this  time  to 
e^cpress  our  attitude  and  stand;  therefore 

'Resolutions  adopted  at  the  Eighteenth  Annual  Convention  of  the  Na- 
tional Association  of  Manufacturers,  Detroit,  May,  1913- 


596  CURRENT  ECONOMIC  PROBLEMS 

Resolved,  That  in  addition  to  the  principles  heretofore  enunci- 
ated and  declared  at  our  convention  in  New  Orleans  in  1903,  we,  in 
convention  assembled,  declare  and  promulgate,  in  addition,  the  fol- 
lowing declaration  of  principles : 

First.  We  hold  that  the  inherent  powers  of  our  courts  of  equity 
shall  not  be  abridged  in  the  issuance  of  injunctions  in  labor  dis- 
putes. 

Second.  We  hold  that  the  power  vested  in  our  courts  to  punish 
for  contempt  of  court  should  not  be  abridged  by  the  granting  of 
jury  trial  for  contempt. 

Third.  We  protest  against  class  legislation,  whether  enacted  by 
state  legislatures  or  congress,  and  we  assert  that  all  forms  of  class 
legislation  are  un-American  and  detrimental  to  our  common  good. 

Fourth.  We  pledge  our  loyalty  to  our  judiciary,  upon  the  main- 
tenance of  which,  unswerved  by  passing  clamor,  rests  the  perpetu- 
ation of  our  laws,  our  institutions  and  our  society. 

Fifth.  We  favor  the  further  enactment  of  equitable,  beneficial, 
and  simplified  workingmen's  compensation  legislation. 

Sixth.  We  denounce  the  subserviency  of  representatives  of  the 
whole  people  to  the  dictation  of  any  class  legislation. 

Seventh.  We  affirm,,  in  the  light  of  proven  facts,  that  any  com- 
promise, toleration,  or  identification  with  the  leaders  of  criminal 
unionism  will  stultify  our  liberties  and  weaken  respect  for  our  laws 
and  their  just  enforcement. 

Eighth.  We  affirm  our  approval  of  the  enactment  of  wise  and 
just  laws,  necessary  to  improve  conditions  of  labor. 

Ninth.  We  affirm  that  our  tested,  self-controlled,  representative 
democracy  is  adequate,  under  our  constitutional  guarantees,  to  ef- 
fectuate the  real  needs  and  purposes  of  our  national  life. 

Tenth.  We  pledge  ourself  towards  the  accomplishment  of  the 
spirit  and  purpose  of  the  foregoing. 

C.     CHARACTER  AND  PURPOSES  OF  TRADE  UNIONS 
290.     The  Undemocratic  Character  of  Trade  Unions* 

BY  CHARIvES  W.  ELIOT 

Trades  unionism  came  into  being  under  undemocratic  forms  of 
government  shortly  after  the  new  developments  of  mechanical 
power  changed  completely  the  methods  and  conditions  of  many 

"Adapted  from  The  Future  of  Trades  Unionism  and  Capitalism  in  a  De- 
mocracy, 9-29.     Copyright  by  Kenyon  College  (1909). 


TRADE  UNIONISM  597 

fundamental  industries.  The  methods  of  the  new  trades  unions,  or- 
ganized to  improve  the  condition  of  the  laboring  people,  were  neces- 
sarily the  methods  of  fighting,  violence,  and  war.  The  conflicts  of 
the  employed  with  the  employers  were  often  barbarous  and  cruel 
on  both  sides.  Nevertheless,  the  efforts  of  the  unions  were  gradu- 
ally successful.  Through  them  higher  wages  and  shorter  hours 
were  procured  at  a  time  when  no  disinterested  and  humane  person 
could  doubt  that  wages  were  too  low  and  hours  too  long.  This  clear 
success  gave  the  working  people  confidence  in  the  violent  methods 
employed.  Gradually  new  policies,  looking  toward  the  creation  of 
a  monopoly  of  labor  in  each  particular  trade  by  the  union  of  that 
trade,  came  into  use. 

The  first  is  the  limitation  in  the  number  of  apprentices  that  shall 
be  employed  in  a  given  trade.  This  limit  of  the  number  is  or- 
dinarily far  below  the  number  which  it  would  be  for  the  inter- 
est of  the  proprietor  to  employ.  The  object  of  this  limitation  is  to 
keep  down  the  number  of  journeymen  in  the  trade,  so  as  to  prevent 
the  coming  into  the  trade  of  a  number  of  persons  so  great  as  to 
afifect  the  rate  of  wages.  With  a  similar  intention,  trades  unions 
have  in  general  resisted  the  introduction  of  trade  schools  into  pub- 
lic school  systems,  and  have  also  been  disposed  to  interfere  with 
the  work  of  private  or  endowed  trade  schools.  The  policy  of  limit- 
ing the  number  of  apprentices  flies  in  the  face  of  the  American 
doctrine  that  education  should  be  free  to  all,  and  should  furnish  a 
useful  training  for  the  practice  of  any  art,  trade,  or  profession. 
Moreover,  it  is  a  selfish  and  monopolistic  policy  without  mitigation. 

Furthermore,  many  unions  lay  down  rules  which  make  it  hard 
for  a  journeyman  to  become  an  employer,  prescribing,  for  example, 
that  no  one  shall  become  an  employer  until  he  is  prepared  to  em- 
ploy a  specified  number  of  journeymen.  Such  rules  tend  to  stiffen 
every  class  or  set  of  mechanics  or  operatives.  Each  class  is  hard 
to  get  into,  and  still  harder  to  get  out  of ;  so  that  the  true  democratic 
mobility  between  classes  or  sets  of  working  people  is  seriously  im- 
paired. It  is  a  survival  of  the  fighting  times  of  trades  unionism. 
Every  fighting  organization  is  compelled  to  sacrifice  in  large  meas- 
ure the  individual  liberty  of  its  members.  Herein  unionism  and 
democracy  are  in  absolute  opposition. 

Two  other  monopolistic  inventions  have,  within  years  com- 
paratively recent,  been  adopted  by  trades  unionism,  the  boycott  and 
the  union  label.  The  boycott  is  intended  to  prevent  all  persons  from 
buying,  or  even  handling  commercially,  articles  not  made  by  union 
labor;  and  the  union  label  is  intended  to  support  the  boycott,  and 
to  enable  and  induce  the  public  to  discriminate  against  articles  which 


598  CURRENT  ECONOMIC  PROBLEMS 

do  not  bear  the  label.  The  object  of  both  policies  is  to  secure  all 
the  productive  labor  in  a  given  trade  for  union  men;  to  this  end 
articles  or  goods  made  by  non-union  men  must  find  no  market.  The 
monopolistic  aim  of  these  policies  is  perfectly  plain. 

Many  unions  refuse  to  handle  in  their  respective  trades  materials 
made  by  non-union  labor,  or  coming  from  factories  which  are  not 
conducted  exclusively  by  union  rules.  This  policy,  if  carried  out 
successfully  by  a  strong  union  which  covers  a  large  area,  is  capable 
of  forcing  the  manufacturer  to  unionize  his  establishment ;  where- 
upon the  unfortunate  consumer  is  likely  to  be  at  the  mercy  of  the 
manufacturer  and  the  union  combined.  These  monopolistic  com- 
binations are  often  entirely  successful  in  the  United  States,  or  in 
large  parts  thereof,  particularly  in  the  building  trades,  and  their 
recent  successes  account  for  a  considerable  portion  of  the  great  rise 
of  prices  which  has  taken  place  in  this  country  during  the  last  five 
years. 

The  manufacturer  of  plumbers'  supplies,  for  example,  makes 
an  agreement  that  he  will  sell  only  to  jobbers  and  to  plumbers.  The 
jobber  agrees  that  he  will  sell  only  to  plumbers.  The  plumbers  are 
all  union  men.  The  owner  of  a  building  under  construction  can- 
not buy  plumbers'  supplies  unless  from  some  independent  manufac- 
turer who  is  not  in  the  combination.  If  he  buys  of  such  an  inde- 
pendent manufacturer,  the  plimibers  at  work  in  his  building  will 
not  touch  the  materials  he  has  bought.  In  the  district  covered  by 
such  an  agreement  there  is  no  competition  which  is  really  free. 

It  would  be  hard  to  exaggerate  the  intense  opposition  between 
all  these  monopolistic  policies  and  the  individual  freedom  in  edu- 
cation, in  family  life,  in  productive  labor,  and  in  trade,  which  is. the 
object  and  end  of  democracy.  The  limitation  of  output  is  a  trades- 
union  practice  which  combines  in  an  unwholesome  way  a  selfish 
unfaithfulness  to  duty  in  the  individual  workman  with  a  deceptive 
notion  of  philanthropic  interest  in  fellow-workmen. 

Another  trades-union  doctrine  that  has  had  a  very  unfortunate 
effect  on  individual  character  is  the  doctrine  or  practice  of  the  min- 
imum wage.  In  practice  that  wage  turns  out  to  be  a  uniform  maxi- 
mum wage,  and  it  is  ordinarily  put  at  a  level  above  the  worth  of 
the  less  skillful  workmen.  This  practice  is  for  the  pecuniary  interest 
of  the  younger  and  least  skillful  workmen,  who,  as  a  rule,  pre- 
dominate in  the  union,  or  at  least  are  its  most  assiduous  members. 
The  first  effect  of  this  practice  is  to  deprive  the  younger  members 
of  a  union  of  all  motive  for  improvement.  A  youth  receives  at  the 
start  the  uniform  wage,  and  the  veteran  who  is  a  member  of  the 
same  union  is  receiving  no  more.    No  effort  on  his  part  can  raise  his 


TRADE  UNIONISM  599 

wages.  The  disastrous  effect  of  this  policy  of  the  uniform  wage 
on  the  desirable  and  happy  increase  of  intelligence,  efficiency,  and 
good  will  as  life  goes  on,  is  perfectly  apparent.  Now  a  true  democ- 
racy means  endless  variety  of  capacity  freely  developed  and  appro- 
priately rewarded.  Uniformity  of  wages  ignores  the  diversity  of 
local  conditions  as  well  as  of  personal  capacity,  obstructs  the  am- 
bitious workman,  cuts  off  from  steady  employment  those  who  can- 
not really  earn  the  minimum  wage,  and  interferes  seriously  with 
the  workman's  prospect  of  improving  his  lot. 

It  is  high  time  it  should  be  generally  understood  that  trades 
unionism  in  important  respects  works  against  the  very  best  effects 
of  democracy. 

291.     An  Employer's  View  of  Trade  Unions® 

BY  ANDREW  CARNEGIE  ^ 

The  influence  of  trades-unions  upon  the  relations  between  the 
employer  and  employed  has  been  much  discussed.  Some  establish- 
ments in  America  have  refused  to  recognize  the  right  of  the  men 
to  form  themselves  into  these  unions,  although  I  am  not  aware 
that  any  concern  in  England  would  dare  to  take  this  position.  This 
policy,  however,  may  be  regarded  as  only  a  temporary  phase  of  the 
situation.  The  right  of  the  workingmen  to  combine  and  to  form 
trades-unions  is  no  less  sacred  than  the  right  of  the  manufacturer 
to  enter  into  associations  and  conferences  with  his  fellows,  and  it 
must  sooner  or  later  be  conceded.  Indeed,  it  gives  one  but  a  poor 
opinion  of  the  American  workman  if  he  permits  himself  to  be  de- 
prived of  a  right  which  his  fellow  in  England  long  since  conquered 
for  himself.  My  experience  has  been  that  trades-unions,  upon  the 
whole,  are  beneficial  both  to  labor  and  to  capital.  They  certainly 
educate  the  working-men,  and  give  them  a  truer  conception  of  the 
relations  of  capital  and  labor  than  they  could  otherwise  form.  The 
ablest  and  best  workmen  eventually  come  to  the  front  in  these 
organizations ;  and  it  may  be  laid  down  as  a  rule  that  the  more  in- 
telligent the  workman  the  fewer  the  contests  with  employers.  It  is 
not  the  intelligent  workman,  who  knows  that  labor  without  his 
brother  capital  is  helpless,  but  the  blatant  ignorant  man,  who  re- 
gards capital  as  the  natural  enemy  of  labor,  who  does  so  much  to 
embitter  the  relations  between  employer  and  employed;  and  the 
power  of  this  ignorant  demagogue  arises  chiefly  from  the  lack  of 
proper  organization  among  the  men  through  which  their  real  voice 

•Adapted  from  The  Gospel  of  Wealth  and  Other  Timely  Essays,  114-116. 
Copyright  by  Doubleday,  Page  &  Co.  (1906). 


6oo  CURRENT  ECONOMIC  PROBLEMS 

can  be  expressed.  This  voice  will  always  be  found  in  favor  of  the 
judicious  and  intelligent  representative.  Of  course,  as  men  become 
intelligent  more  deference  must  be  paid  to  them  personally  and  to 
their  rights,  and  even  to  their  opinions  and  prejudices;  and,  upon 
the  whole,  a  greater  share  of  profits  must  be  paid  in  the  day  of 
prosperity  to  the  intelligent  than  to  the  ignorant  workman.  He 
cannot  be  imposed  upon  so  readily.  On  the  other  hand,  he  will 
be  found  much  readier  to  accept  reduced  compensation  when  busi- 
ness is  depressed ;  and  it  is  better  in  the  long  run  for  capital  to  be 
served  by  the  highest  intelligence,  and  to  be  made  well  aware  of  the 
fact  that  it  is  dealing  with  men  who  know  what  is  due  to  them, 
both  as  to  treatment  and  compensation. 

292.     The  Purposes  of  Trade  Unionism^" 

BY  JOHN  MlTCHELIv 

In  its  fundamental  principle  trade  unionism  is  plain  and  simple. 
Trade  unionism  starts  from  a  recognition  of  the  fact  that  under 
normal  conditions  the  individual,  unorganized  workman  cannot 
bargain  advantageously  with  the  employer  for  the  sale  of  his  labor. 
Since  he  has  no  money  in  reserve  and  must  sell  his  labor  immedi- 
ately, since  he  has  no  knowledge  of  the  market  and  no  skill  in 
bargaining,  since,  finally,  he  has  only  his  own  labor  to  sell,  while 
the  employer  engages  hundreds  or  thousands  of  men,  and  can  easily 
do  without  the  services  of  any  particular  individual,  the  working- 
man,  if  bargaining  on  his  own  account  and  for  himself  alone,  is  at 
an  enormous  disadvantage.  Trade  unionism  recognizes  the  fact 
that  under  such  conditions  labor  becomes  more  and  more  degener- 
ate, because  the  labor  which  the  workman  sells  is  a  thing  of  his 
very  life  and  soul  and  being.  In  the  individual  contract  between 
the  rich  employer  and  the  poor  laborer,  the  laborer  will  secure  the 
worst  of  it.  The  individual  contract  means  that  the  worst  and 
lowest  man's  condition  in  the  industry  will  be  that  which  the  best 
man  must  accept.  From  first  to  last,  from  beginning  to  end,  always 
and  everj'where,  trade  unionism  stands  opposed  to  the  individual 
contract.  There  can  be  no  concession  or  yielding  upon  this  point. 
There  can  be  no  permanent  prosperity  of  the  working  classes,  no 
consecutive  improvements  in  conditions,  until  the  principle  is  firmly 
and  fully  established,  that  in  industrial  life,  the  settlement  of  wages, 
the  hours  of  labor,  and  all  conditions  of  work,  must  be  made  be- 
tween employers  and  workingmen  collectively  and  not  individually. 

"Adapted  from  Organized  Labor,  2-1 1.  Copyright  by  the  American 
Book  and  Bible  House  (1903). 


TRADE  UNIONISM  6oi 

Trade  unionism  thus  recognizes  that  the  destruction  of  the 
workingman  is  the  individual  bargain,  and  the  salvation  of  the 
workingman  is  the  joint,  united,  or  collective  bargain.  To  carry 
out  a  joint  bargain,  however,  it  is  necessary  to  establish  a  minimum 
of  wages  and  conditions  which  will  apply  to  all.  By  this  it  is  not 
meant  that  the  wages  of  all  shall  be  the  same,  but  merely  that  equal 
pay  shall  be  given  for  equal  work.  If  some  are  so  willing  to  be 
over-rushed  as  to  do  more  than  a  fair  day's  work  for  a  fair  day's 
wage,  or  are  willing  to  allow  themselves  to  be  forced  into  patron- 
izing truck  stores,  to  submit  to  arbitrary  fines  or  unreasonable 
deductions,  whereas  others  would  rebel  at  these  impositions,  it 
would  result  that  in  the  competition  among  the  men  to  retain  their 
positions,  those  who  were  most  pliant  and  lowest  spirited  would 
secure  the  work,  and  the  wages,  hours  of  labor,  and  conditions  of 
employment  would  be  set  or  accepted  by  the  poorest,  most  cringing, 
and  least  independent  of  woricers.  If  the  trade  union  did  not  insist 
upon  enforcing  common  rules  providing  for  equal  pay  for  equal 
work  and  definite  conditions  of  safety  and  health  for  all  woricers 
in  the  trade,  the  result  would  be  that  all  pretense  of  a  joint  bargain 
would  disappear,  and  the  employers  would  be  free  constantly  to 
make  individual  contracts  with  the  various  members  of  the  union. 

The  trade  union  does  not  stand  for  equal  earnings  for  all  work- 
men. It  does  not  object  to  one  man's  earning  twice  as  much  as  the 
man  working  by  his  side,  provided  both  men  have  equal  rates  of 
pay,  equal  hours  of  work,  equal  opportunities  of  securing  work, 
and  equal  conditions  of  employment.  What  the  union  insists  upon  is 
that  certain  minimum  requirements  be  fulfilled  for  the  health,  com- 
fort, and  safety  of  all,  in  order  that  the  workingmen  shall  not  be 
obliged  to  compete  for  jobs  by  surrendering  their  claims  to  a  reas- 
onable amount  of  protection  for  their  health,  and  for  their  life  and 
limb. 

The  trade  union  thus  stands  for  freedom  of  contract  on  the  part 
of  workingmen — ^the  freedom  or  right  to  contract  collectively.  The 
trade  union  also  stands  for  definiteness  of  the  labor  contract.  The 
workingman  agrees  to  work  at  a  wage  offered  him  by  his  employer, 
but  frequently  nothing  is  said  as  to  hours  of  labor,  periods  for 
meals  and  rest,  intensity  of  work,  conditions  of  the  workshop,  pro- 
tection of  the  workmen  against  filthy  surroundings  or  unguarded 
machinery,  character  of  his  fellow-workmen,  liability  of  the  em- 
ployer for  accident,  nor  any  of  the  thousand  conditions  which 
affect  the  welfare  of  the  workman  and  the  gain  of  both  employer 
and  employee.    In  the  absence  of  an  agreement  with  the  imion  it 


6o2  CURRENT  ECONOMIC  PROBLEMS 

is  in  the  power  of  the  employer  to  make  such  rules  absolutely,  or 
to  change  or  amend  them  at  such  times  as  he  thinks  proper. 

The  right  to  bargain  collectively  necessarily  involves  the  right 
to  representation.  Experience  and  reason  both  show  that  a  man, 
who  is  dependent  upon  the  good  will  of  an  employer,  is  in  no  po- 
sition to  negotiate  with  him.  Workingmen  should  have  the  right 
to  be  represented  by  whomsoever  they  wish.  The  denial  of  the 
right  of  representation  is  tyranny.  Without  the  right  to  choose 
their  representatives,  the  men  cannot  enjoy  the  full  benefit  of  col- 
lective bargaining;  and  without  the  right  of  collective  bargaining, 
the  door  is  open  to  the  evils  of  the  individual  contract.  To  avoid 
these  calamities  the  workmen  demand  "the  recognition  of  the 
union." 

D.    THE  THEORY  OF  UNIONISM 
293.     The  Principle  of  Uniformity" 

BY  ROBERT  F.  HOXIE 

The  key  to  the  understanding  of  union  rules  and  actions  is  to  be 
found  in  the  fundamental  principles  and  theories  of  their  program. 
If  you  understand  these  thoroughly  and  the  policies  to  which  they 
give  rise,  you  can  generally  explain  any  given  rule  or  act  without 
difficulty;  and  without  that  understanding  you  are  almost  certain  to 
go  astray.  In  the  space  available  it  is  barely  possible  to  illustrate 
in  a  general  way  these  theories. 

Let  us,  then,  by  way  of  illustration,  take  one  of  the  fundamental 
principles  of  Business  Unionism,  the  principal  of  uniformity  of 
standardization,  and  use  it  as  a  partial  explanation  of  union  poli- 
cies, demands,  and  methods.  This  principle  requires  that  all  the 
men  doing  the  same  work  use  the  same  kind  of  tools  and  materials, 
work  normally  the  same  length  of  time,  and  at  the  same  speed,  turn 
out  the  same  .quantity  and  quality  of  goods,  and  receive  the  same 
rate  of  wages.  The  union  argument  on  which  the  principle  rests 
runs  somewhat  as  follows: 

I.  Wages  and  conditions  of  employment  are  determined  by 
the  relative  bargaining  strength  of  the  workers  and  employers  of  the 
industrial  group. 

^* Adapted  from  an  unpublished  lecture  entitled  "The  Trade-Union  Pro- 
gram" delivered  at  the  University  of  Michigan,  May  17,  1914.  The  state- 
ments in  this  paper  are  general  and  admit  of  many  exceptions.  They  consti- 
tute a  theoretical  statement  of  the  tendencies  underlying  union  activities 
rather  than  a  generalization  from  such  activities.  They  are  not  clearly  un- 
derstood even  by  all  unionists. 


TRADE  UNIONISM  603 

2.  Under  competitive  conditions  the  bargaining  strength  of  the 
employer  is  greater  than  that  of  the  individual  laborer,  because  of 
(a)  the  superior  bargaining  knowledge,  skill,  and  waiting  power  of 
the  employer;  (&)  the  smaller  object  which  he  has  at  stake — pe- 
cuniary profits  versus  life;  (c)  the  presence  of  an  actual  or  potential 
oversupply  of  labor;  (d)  the  increase  in  bargaining  power  on  the 
part  of  the  employer  in  inverse  ratio  to  his  industrial  and  financial 
strength;  {e)  the  limitation  of  the  bargaining  strength  of  the  labor 
group  to  the  competitive  strength  of  its  weakest  member. 

3.  The  full  bargaining  strength  of  the  employer  is  bound  to  be 
exercised  against  the  workers  because  under  competitive  conditions 
the  pressure  of  the  consuming  public  for  cheap  goods  is  transmitted 
through  the  retailer  and  the  wholesaler  to  the  most  unscrupulous 
employer,  who  sets  the  pace;  while  under  monopolistic  conditions 
the  relations  of  the  employer  and  the  worker  are  impersonal. 

4.  Therefore,  allowing  the  employer  to  pit  his  bargaining 
strength  against  the  bargaining  strength  of  each  worker,  thus  fixing 
their  different  rates  of  work,  wages,  etc.,  means  the  progressive 
deterioration  of  the  wages  and  conditions  of  employment  of  the 
group. 

5.  The  only  way  to  prevent  this  deterioration  is  to  rule  out  com- 
petition by  establishing  and  maintaining  the  principle  of  uniformity 
or  standardization,  i.  e.,  to  require  for  all  the  men  doing  the  same 
work  the  use  of  the  same  kinds  of  tools  and  materials,  the  same 
working  time,  the  same  speed,  the  same  quality  of  work,  and  the 
same  output. 

Now  let  us  see  what  light  this  policy  throws  upon  the  policies, 
demands,  methods,  and  attitudes  found  in  the  union  program.  The 
main  purpose  of  this  principle,  as  we  have  seen,  is  to  rule  out  com- 
petition. But  competition  is  possible  in  regard  to  the  wage  rate, 
hours  of  labor,  or  the  exertion  and  output  of  the  individual.  To 
prevent  the  first  the  establishment  of  a  standard  rate  of  wages  at  a 
fixed  minimum  is  necessary.  The  prevention  of  the  second  re- 
quires the  fixing  of  a  normal  day  or  week  as  a  maximum.  The  third, 
in  like  manner,  necessitates  uniformity  in  the  conditions  and  rate 
of  work.  It  is  obvious  that  these  conditions  working  together  make 
the  Standard  rate  a  practical  maximum  as  well  as  a  minimum.  Hence 
there  arises  the  tendency  toward  dead-line  mediocrity. 

Competition,  however,  is  possible  not  only  in  regard  to  the  wage 
rate,  the  hours,  and  the  exertion  or  output,  but  also  in  regard  to  the 
safety  and  sanitation,  the  comfort  and  convenience  of  the  shop ;  the 
times  of  beginning  and  ending  work ;  the  arrangement  of  shifts ;  the 


6o4  CURRENT  ECONOMIC  PROBLEMS 

time,  place,  mode,  and  character  of  pay;  the  materials  and  tools 
used;  and  all  the  minor  details  of  the  conditions  of  work  and  pay. 
Hence,  to  secure  uniformity,  there  arises  the  necessity  of  minute 
specifications  of  standards  in  regard  to  all  the  incidents  of  work 
and  pay,  from  which  no  deviation  can  normally  be  allowed.  This 
explains  a  multitude  of  petty  and  harassing  restrictions,  of  which 
employers  complain,  the  validity  of  which  rests,  not  on  their  im- 
mediate character  and  effects,  but  on  the  validity  of  the  general 
principle  of  uniformity. 

A  large  part  of  the  Trade-Union  Program  is  thus  seen  to  be  a 
direct  effort  to  establish  specific  standards  incidental  to  the  prin- 
ciple of  uniformity.  Another  large  portion  is  in  the  interest  of  en- 
forcement of  conditions  essential  to  their  existence. 

Let  us  first  consider  the  latter.  It  is  evident  that  these  stand- 
ards cannot  exist  if  they  are  violated  with  impunity;  still  successful 
enterprise  demands  flexibility.  Hence  there  has  grown  up  a  long 
list  of  irregularities  and  violations  permitted' but  charged  with  pen- 
alties. These  have  the  double  object  of  stopping  underbidding  and 
of  preventing  the  irregular  practices  from  becoming  regularly  estab- 
lished. For  example,  overtime,  the  doing  of  extraordinary  kinds  of 
work,  and  the  doing  of  work  in  irregular  ways  are  allowed,  but  only 
on  condition  of  extra  pay. 

These  standards,  moreover,  are  hard  to  establish  and  maintain 
in  a  thoroughly  dynamic  industrial  state,  where  new  trades  are 
evolving,  and  new  processes  are  coming  in  constantly.  This  in  part 
explains  the  undoubted  tendency  of  unions  to  restrict  new  trades, 
new  machinery,  new  methods,  and  new  processes  in  industry — in 
short,  industrial  progress. 

Now  if  we  turn  to  the  enforcement  of  these  standards,  we  shall 
find  that  another  large  block  of  union  policies  and  demands  are,  in 
part  at  least,  in  the  interests  of  the  principle  of  uniformity,  and  are 
valid  if  it  is  valid.  The  enforcement  of  these  standards  means  the 
Common  Rule:  But  to  secure  this  you  must  have  Collective  Bar- 
gaining, or  legislation.  Collective  Bargaining  implies  recognition  of 
the  union  and  all  the  complex  machinery  for  the  making  and  enforce- 
ment of  contracts. 

Moreover,  you  cannot  enforce  these  standards  unless  you  control 
the  Workers  or  the  Working  Personnel.  This,  in  part,  explains 
apprenticeship  regulations,  and  to  the  unionist  calls  absolutely  for 
the  Closed  Shop  and  the  control  of  hiring  and  discharge  of  men.  It 
is  evident  that  if  you  cannot  control  the  men  you  cannot  cut  out 
underbidding  in  its  manifold  guise.    This  is  especially  true,  since  the 


TRADE  UNIONISM  605 

employer  is  always  supposed  to  be  trying  to  induce  it  by  Swifts, 
bell-horses,  secret  bonuses,  frightening  the  men,  etc. 

To  enforce  uniformity  you  must  also  have  control  over  the  out- 
put of  the  individual  and  you  must  control  the  processes  of  produc- 
tion. You  must  prevent  the  use  of  methods  of  stimulation,  such  as 
bonus  systems,  etc.,  by  the  employer.  Moreover,  you  must  stop  up 
every  minutest  loophole  for  the  evasion  of  the  principle  by  the 
employer.  Hence  you  must  watch  him  carefully;  you  must  have 
walking  delegates  on  the  job.  You  must  carefully  delimit  the  field 
of  work,  and  prevent  reclassification,  so  that  the  employer  cannot 
create  exceptions  by  the  use  of  new  men  or  new  work.  Here  again 
we  find  explanation  of  a  great  number  of  harassing  detailed  de- 
mands and  rules  which  the  union  endeavors  to  enforce. 

It  follows,  then,  that  a  large  portion  of  the  more  specific  part  of 
the  trade-union  program  is  implied  in  the  principle  of  uniformitj' 
and  flows  directly  from  the  effort  to  establish  and  enforce  it. 


294.     Collective  Bargaining  and  the  Trade  Agreement^* 

BY  JOHN  R.  COMMONS 

Philanthropists  have  long  been  dreaming  of  the  time  when  cap- 
ital and  labor  should  lay  aside  the  strike  and  boycott  and  should  re- 
sort to  arbitration.  By  arbitration  they  understand  the  submission 
of  differences  to  a  disinterested  third  party.  But  the  philanthropists 
have  overlooked  a  point.  Arbitration  is  never  accepted  until  each 
party  to  a  dispute  is  equally  afraid  of  the  other;  and  when  they 
have  reached  that  point,  they  can  adopt  something  better  than  arbi- 
tration,— namely,  negotiation.  Arbitration  is  impossible  %vithout  or- 
ganization, and  two  equally  powerful  organizations  can  negotiate  as 
well  as  arbitrate.  This  higher  form  of  industrial  peace — negoti- 
ation— has  now  reached  a  formal  stage  in  a  half  dozen  large  in- 
dustries in  the  United  States,  which,  owing  to  its  remarkable  like- 
ness to  parliamentan,'  government  in  the  country  of  its  origin,  Eng- 
land, may  well  be  called  constitutional  government  in  industry. 

The  bituminous  mine  operators  and  the  bituminous  mine  work- 
ers of  the  four  great  states  of  Illinois,  Indiana,  Ohio  and  Penn- 
sylvania have  such  a  constitution.  The  annual  interstate  conference 
of  the  bitimiinous  coal  industry  is  the  most  picturesque  and  inspir- 
ing event  in  the  modem  world  of  business.     Here  is  an  industry 

"Adapted  from  "A  New  Way  of  Settling  Labor  Disputes,"  in  the  Amer- 
ican Review  of  Reviews,  XXIII,  328-333.     Copyright  (1901). 


6o6  CURRENT  ECONOMIC  PROBLEMS 

where,  for  many  years,  induistrial  war  was  chronic,  bloodshed  fre- 
quent, distrust,  hatred,  and  poverty  universal.  Today  the  leaders 
of  the  two  sides  come  together  for  a  two  weeks'  parliament,  face 
to  face,  with  plain  speaking,  without  politics,  religion,  or  demagogy ; 
and  there  they  legislate  for  an  industry  that  sends  upon  the  market 
annually  $200,000,000  of  product. 

The  most  comforting  feature  of  such  negotiations  is  the  matter- 
of-fact  way  in  which' each  side  takes  the  other.  There  is  none  of 
that  old-time  hypocrisy  on  the  part  of  the  employers,  that  their 
great  interest  in  life  is  to  shower  blessings  upon  their  hands ;  and 
there  is  none  of  that  ranting  demagogy  on  the  part  of  the  work- 
men about  the  dignity  of  labor  and  the  iniquity  of  capital.  On  the 
contrary,  each  side  frankly  admits  that  its  ruling  motive  is  self- 
interest;  that  it  is  trying  to  get  as  much  as  it  can  and  to  give  as 
little  as  it  must;  and  that  the  only  sanction  which  compels  them  to 
come  together,  and  to  stay  together  until  they  reach  a  unanimous 
vote,  is  the  positive  knowledge  that  otherwise  the  mines  will  shut 
down  and  neither  the  miner  will  earn  wages  nor  the  operator  reap 
profits.  It  is  simply  wholesome  fear  that  backs  their  discussions ; 
the  capitalist  knows  that  there  are  no  other  laborers  in  the  world 
whom  he  can  import  as  "scabs"  to  take  the  places  of  those  whose 
representatives  face  him  in  this  conference  and  this  scale  com- 
mittee, and  he  knows,  too,  from  a  severe  experience,  that  every  one 
of  these  110,000  miners  will  obey  as  one  man  the  voice  of  these 
their  chosen  representatives.  The  miners  know,  also,  that  these 
capitalists  with  whom  they  are  negotiating  are  the  very  ones  who 
control  their  only  opportunities  for  earning  the  wages  that  feed 
themselves  and  their  families.  Consequently,  everybody  knows  that 
an  agreement  must  be  reached  before  adjournment,  or  else  the  in- 
dustry will  be  reduced  to  anarchy  and  their  wages  and  profits,  to 
say  nothing  of  lives,  will  be  destroyed. 

In  every  trade  agreement  there  are  usually  two  large  and  dis- 
tinct questions  on  which  the  parties  differ,  namely,  wages  and  meth- 
ods of  managing  employees.  The  labor  side  wants  higher  wages 
(including  short  hours)  and  restrictions  on  bosses  and  foremen. 
The  employer  side  wants  low  wages  and  a  free  hand  for  the  boss. 
Each  side  thereupon  comes  to  the  joint  conference  with  demands 
more  extreme  than  it  expects  to  see  granted.  At  the  conference  of 
1900  the  operators  offered  an  advance  of  9  cents  per  ton  and  the 
miners  demanded  an  advance  of  20  cents.  The  operators  wished  to 
retain  the  system  of  paying  for  the  screened  coal  only,  and  not  for 
the  slack  and  waste ;  but  the  miners  demanded  payment  on  the  basis 
of  the  "run-of-the-mine,"  i.  e,  of  all  coal  brought  to  the  surface, 
before  it  is  run  over  the  screens.     The  miners  asked  also  7  cents 


TRADE  UNIONISM  607 

differential  between  pick  and  machine  mining,  but  the  operators 
wanted  12  cents  differential. 

These  opposing  propositions  had  been  formulated  in  separate 
conventions  and  conferences  by  the  opposing  sides.  The  operators' 
position  was  presented  to  the  joint  conference  and  received  the 
unanimous  "aye"  of  the  operators  and  the  unanimous  "no"  of  the 
miners.  The  miners'  proposition  was  then  presented,  and  received 
the  unanimous  **aye"  of  the  miners  and  the  unanimous  "no"  of  the 
operators.  The  two  sides  then  began  their  parrying.  Mr.  Mitchell 
accused  the  operators  of  "joking."  The  operators  accused  the  miners 
of  absurdity.  Several  days  were  spent  in  these  tilts.  Finally  con- 
cessions were  made  on  both  sides.  Certain  matters  were  left  un- 
decided or  referred  back  to  the  state  conferences.  The  committee 
reported  a  unanimous  agreement,  and  the  joint  conference  adopted 
it  unanimously.  It  gave  an  advance  of  14  cents  in  some  districts, 
and  9  cents  in  others.  It  permitted  the  "mine-run"  standard  in  cer- 
tain districts,  and  the  "screened"  standard  in  other  districts,  and  a 
"double  standard"  in  yet  a  third  group  of  districts,  but  regulated 
the  size  of  the  screen  and  fixed  a  wide  differential  between  "mine- 
run"  and  a  "regulation  screen."  Similar  compromises  were  made  on 
the  machine  scale,  day  labor,  and  all  along  the  line.  Nobody  was 
satisfied,  yet  everybody  was  satisfied.  It  was  the  best  they  could  do, 
and  it  saved  the  business  from  paralysis.  "A  failure  to  agree," 
said  President  Mitchell  in  his  closing  speech,  "would  not  only  have 
ruined  the  homes  of  the  miners,  but  would  have  ruined  the  business 
of  the  operators."  And  though  the  miners  did  not  get  what  they 
expected,  yet,  said  Mitchell,  "there  has  never  been  a  time  in  the 
history  of  mining,  even  within  the  recollection  o^  the  oldest  one 
among  you,  when  an  advance  so  great  as  this,  and  applied  to  so 
great  a  number  of  men,  was  secured." 

The  success  of  each  conference  depends  directly  upon  the  en- 
forcement of  the  legislation  of  the  preceding  conference.  Curiously 
enough,  this  enforcement  falls  solely  upon  the  miners'  organization. 
The  operators,  indeed,  have  their  several  state  associations,  but  no 
national  nor  interstate  association  like  that  of  the  miners.  More- 
over, the  operators  are  loosely  organized.  They  can  bring  only 
moral  suasion  to  bear  upon  the  recalcitrant  operator  who  rebels 
at  their  national  decrees.  But  the  miners  can  do  more;  they  not 
only  can  suspend  their  own  local  unions  which  violate  the  agree- 
ment, but  they  can  shut  down  the  mine  of  the  rebellious  operator 
and  drive  him  out  of  business.  The  operators  understand  this,  and 
they  know  that  their  own  protection  against  the  cutthroat  operator 
depends  solely  on  the  Miners'  Union.  President  Mitchell,  of  the 
union,  at  the  close  of  the  Indianapolis  conference,  significantly  ac- 


6o8  CURRENT  ECONOMIC  PROBLEMS 

cepted  his  office  of  joint  executive  in  what  might  be  called  his  in- 
augural. He  said,  "I  will  give  notice  to  the  operators  now  that 
when  they  go  home,  unless  they  keep  the  agreement  inviolate,  we 
will  call  the  men  out;  and  I  will  serve  notice  on  the  miners  that, 
unless  they  keep  the  laws  of  the  organization,  we  will  suspend  them 
from  the  organization." 

In  trade  agreements  the  employer  must  recognize  the  union. 
Employers  are  willing  to  pay  high  wages  if  all  their  competitors 
pay  the  same  wages.  It  is  not  high  wages  that  they  dread,  but  secret 
and  unfair  cutting  of  wages.  This  is  also  exactly  what  the  laborers 
resist.  The  joint  state  or  national  agreements  place  all  competitors 
on  the  same  basis  in  the  same  market.  Indeed,  in  the  coal  trade 
the  scale  is  nicely  adjusted  so  that  the  districts  with  the  better 
quality  of  coal  and  the  lower  railway  charges  are  required  to  pay 
enough  higher  wages  than  other  districts  to  counterbalance  their 
superior  natural  advantages.  On  this  basis,  so  far  as  the  union 
enforces  the  agreement,  every  operator  knows  exactly  what  his 
competitor's  coal  is  costing;  there  is  no  secret  cutting;  and  the 
trade  is  not  brought  down  to  the  level  of  the  few  unscrupulous  and 
oppressive  operators  who  grind  down  their  laborers.  For  this  reason 
the  bulk  of  employers  who  have  had  experience  with  these  joint 
agreements  are  heartily  in  favor  of  them. 

The  most  important  result  of  these  trade  agreements  is  the 
new  feeling  of  equality  and  mutual  respect  which  springs  up  in 
both  employer  and  employee.  After  all  has  been  said  in  press  and 
pulpit  about  the  "dignity  of  labor,"  the  only  "dignity"  that  really 
commands  respect  is  the  bald  necessity  of  dealing  with  labor  on 
equal  terms.  With  scarcely  an  exception  the  capitalist  officials  who 
make  these  agreements  with  the  labor  officials  of  these  powerful 
unions  testify  to  their  shrewdness,  their  firmness,  their  temperance, 
their  integrity,  and  their  faithfulness  to  contracts.  Magnificent  gen- 
eralship is  shown  in  combining  under  one  leadership  the  miscel- 
laneous races,  religions,  and  politics  that  compose  the  miners  of 
America.  The  labor  movement  of  no  other  country  has  faced  such 
a  problem. 

295.     The  Economics  of  the  Closed  Shop^' 

BY  FRANK  T.   STOCKTON 

In  recent  popular  discussion  of  the  closed  shop  much  emphasis 
has  been  put  upon  its  uneconomical  character.  The  charge  is  made 
that  the  demand  for  the  exclusive  employment  of  union  men,  by 

^'Adapted  from  The  Closed  Shop  in  American  Trade  Unions,  165-175. 
Gjpyright  by  the  Johns  Hopkins  Press  (191^)- 


TRADE  UNIONISM  609 

interfering  with  the  right  of  an  employer  to  "run  his  own  business," 
makes  high  efficiency  impossible.  This  argument  is  based  on  the 
fact  that  the  employer,  under  the  competitive  system,  is  alone  re- 
sponsible for  the  successful  conduct  of  business  undertakings.  If 
he  fails  to  produce  as  well  and  as  cheaply  as  others  do,  the  loss  is 
his.  It  is  necessary,  therefore,  for  the  most  economic  conduct  of 
business  that  the  employer  "should  have  power  to  order  his  own 
affairs."  He  "should  not  be  influenced  by  any  other  consideration 
in  the  hiring  of  men  than  the  ability,  fitness  or  loyalty  of  the  appli- 
cant." At  the  same  time  he  should  be  free  to  reward  exceptional 
workmen  and  to  discharge  those  who  are  inefficient  or  insubordi- 
nate. He  should  be  the  sole  judge  as  to  the  kind  of  machinery, 
tools,  and  material  to  be  used.  Only  in  this  way,  it  is  argued,  can 
the  employer  secure  that  "effective  discipline"  which  is  essential  in 
bringing  about  the  "highest  measure  of  success  in  industry." 

The  "essence"  of  the  open  shop  is  that  the  employer  is  entirely 
free  "to  hire  and  discharge."  The  closed  shop,  on  the  other  hand, 
denies  him  the  "right  to  hire  and  discharge."  If  the  employer 
wishes  to  hire  competent  non-union  men,  he  is  prevented  from  pro- 
curing their  services  if  they  cannot  or  will  not  obtain  union  mem- 
bership. 

The  employer  complains  that  tmder  the  closed  shop,  instead  of 
being  able  to  secure  workmen  regardless  of  whether  they  are  union 
or  non-union,  white  or  black,  Catholic  or  Protestant,  Jew  or  Gen- 
tile, he  is  compelled  to  draw  from  a  definitely  fixed  labor  market. 
Very  often,  too,  this  market  is  severely  limited  by  the  refusal  of 
the  unions  on  one  ground  or  another  to  admit  competent  woricmen 
to  membership.  He  cannot  hire  members  of  other  unions  who  are 
competent  to  do  the  work  because  this  will  at  once  involve  him  in 
a  jurisdictional  dispute.  One  trial  is  enough  to  demonstrate  the 
fact  that  members  of  rival  unions  tolerate  each  others'  presence  less 
than  they  do  that  of  non-unionists.  There  is  then  no  practicable 
way  in  which  he  can  secure  additional  help  when  his  work  increases 
except  by  bidding  for  workmen  against  other  union  employers.  It 
is  also  said  that  the  closed  shop  serves  to  prevent  the  discharge  of 
inefficient  employees. 

Another  evil  attributed  to  the  closed  shop  is  that  it  establishes  a 
minimum  wage  which  becomes  virtually  also  a  maximum  wage. 
This  is  said  to  produce  a  disastrous  "dead  level"  of  efficiency 
throughout  an  establishment  and  to  discourage  effort.  Accordingly 
union  control  is  declared  to  be  "absolute  death  to  individual  effort 
and  ambition,"  and  to  cause  the  degeneration  of  "mental  and  moral 
fiber."    Restriction  of  output  is  the  direct  result  of  such  conditions. 


6io  CURRENT  ECONOMIC  PROBLEMS 

Especially  harmful  does  the  closed  shop  become,  in  the  opinion  of 
its  opponents,  when  a  union  requires  foremen  to  obey  its  rules  and 
to  serve  the  union  rather  than  the  employers.  All  closed-shop 
unions,  it  is  represented,  "define  the  workman's  rights  but  say 
nothing  of  his  duties.  They  destroy  shop  discipline  and  put  nothing 
in  its  place." 

To  these  indictments  the  advocates  of  the  closed  shop  have  made 
vigorous  rejoinder.  They  assert  that  while  the  unions  do  not  allow 
employers  to  "victimize"  their  members,  they  do  not  interfere  other- 
wise with  the  "right  to  hire  and  discharge"  as  long  as  all  persons 
who  are  hired  become  union  members.  It  is  also  flatly  denied  that 
the  minimum  wage  is  usually  the  maximum,  and  that  production 
is  restricted  in  closed  shops. 

The  reconciliation  of  these  conflicting  statements  of  facts  is 
possible.  The  opponents  of  the  closed  shop  in  discussing  its  economic 
effects  always  assume  that  the  closed  shop  is  everywhere  the  same, 
and  take  as  typical  those  unions  in  which  the  restrictions  on  employ- 
ment are  most  severe.  The  advocates  of  the  closed  shop  assume  as 
typical  those  unions  in  which  the  restrictions  are  mildest.  It  will 
be  noted  that  in  this  respect  the  unions  vary  widely.  In  the  majority 
of  closed-shop  unions,  however,  the  employer  is  allowed  to  hire  non- 
unionists  when  competent  unionists  are  not  available,  or  even  in 
many  unions  when  they  are  available.  It  is  also  customary  to  allow 
such  non-unionists  to  work  a  certain  period  in  a  shop  before  being 
required  to  join  the  union.  There  is  little  basis  for  the  claim,  there- 
fore, that  employers  are  restricted  to  hiring  union  men  only.  It  is 
true  that  "scabs"  and  members  of  rival  unions  are  rarely  allowed  to 
work.  "Scabs,"  however,  form  but  a  small  part  of  the  men  in  any 
trade,  and  agreements  between  rival  unions  have  now  to  some  extent 
solved  the  problem  of  jurisdictional  disputes. 

If  the  union  itself  is  closed,  union  employers  have  no  means  of 
obtaining  additional  help  when  their  business  increases.  The  closed 
union,  however,  although  it  is  usually  found  with  the  closed  shop,  is 
not  identical  with  it.  To  say  that  no  more  members  shall  be  admitted 
to  a  union  is  an  entirely  different  thing  from  saying  that  union  men 
shall  not  work  with  non-unionists. 

All  unions  that  have  advanced  beyond  the  most  rudimentary 
stage  enforce  a  minimum  wage.  The  tendency  to  uniformity  and  a 
"dead  level"  growing  out  of  the  existence  of  the  minimum  wage  can 
only  be  connected  with  the  closed  shop  through  some  restriction  on 
the  right  to  hire  and  discharge.  If  the  union  has  a  compulsory  wait- 
ing list,  it  is  easy  to  see  how  the  minimum  wage  may  become  the 
maximum  wage.    However,  compulsory  waiting  lists  are  established 


TRADE  UNIONISM  6li 

in  very  few  unions.  Similarly,  restriction  of  output  is  connected 
with  the  closed  shop  only  through  the  waiting  list.  A  great  part  of 
closed-shop  unions  do  not  have  waiting  lists. 

It  is  also  charged  that  the  joint  and  extended  closed  shops  lead 
to  demands  upon  employers.  When  satisfactory  conditions  have 
been  obtained  in  one  trade,  the  men  may  be  called  out  on  strike  be- 
cause "unfair"  material  is  used,  or  because  the  open  shop  exists  in 
an  allied  trade.  Grievances  "manufactured  outside  the  shop"  are 
thus  said  to  be  constantly  arising.  Complaint  is  also  made  that  the 
closed  shop  is  responsible  for  many  unnecessary  shop  rules  which 
virtually  deprive  the  employer  of  control  over  his  business.  One 
writer  has  gone  so  far  as  to  say  that  "the  amount  of  restriction  which 
it  may  be  expected  to  find  in  'closed  shops'  will  certainly  amount  to 
one-third  of  what  the  output  should  amount  to."  Statements  have 
frequently  been  made  that  the  open  shop  has  brought  business  pros- 
perity to  different  communities. 

Taking  up  the  last  of  these  contentions  first,  the  unions  allege 
that  closed-shop  agreements  are  of  distinct  advantage  to  employers. 
In  open  shops  of  most  trades  the  employer  is  said  to  be  constantly 
harassed  with  complaints  from  individuals.  In  closed  shops  all 
grievances  must  first  be  referred  to  the  union,  which  acts  upon  many 
of  them  unfavorably.  It  is  equally  undeniable  that  most  unions 
which  have  opportunity  to  enforce  the  extended  or  the  joint  closed 
shop  have  not  hesitated  at  times  to  strike  even  when  all  their  de- 
mands in  the  particular  shop  have  been  satisfied. 

The  unions  have  also  denied  in  a  general  way  that  their  shop 
rules  have  been  unduly  restrictive.  As  a  matter  of  fact,  the  great 
open-shop  movement  which  began  in  1901  was  caused  primarily  by 
the  rapid  increase  in  rules  regulating  the  number  of  apprentices,  the 
kind  of  machinery  that  should  be  used,  the  methods  of  shop  manage- 
ment, and  the  like.  The  connection  between  the  closed  shop  and 
arbitrary  shop  rules  is  close,  but  the  two  are  not  identical.  Arbitrary 
rules  can  rarely  be  enforced  except  in  closed  shops.  If  the  union 
is  strong  enough  to  secure  the  one,  it  can,  if  it  sees  fit,  enforce  the 
other.  Obviously,  however,  a  closed-shop  union  need  not,  and 
many  of  them  do  not,  have  hurtful  shop  rules. 

The  defenders  of  the  closed  shop  have  tried  to  show  that  the 
closed  shop  is  an  advantage  to  an  employer.  In  the  first  place,  they 
claim  that  the  closed  shop  protects  fair-minded  employers  from 
"cut-throat  competition."  If  an  industry  is  thoroughly  unionized, 
every  manufacturer  or  contractor  can  tell  precisely  what  his  com- 
petitors are  paying  in  wages.    As  wages  form  the  largest  item  in  the 


6i2  CURRENT  ECONOMIC  PROBLEMS 

average  employer's  expense  account,  it  therefore  becomes  possible 
for  him  to  "figure  intelligently  on  his  work,"  something  which  he 
"could  never  feel  certain  of  were  the  open  shop  to  pervail."  The 
same  shop  rules  also  apply  in  all  union  establishments.  Under  the 
open  shop  not  nearly  the  same  uniformity  in  competitive  conditions 
can  be  secured.  The  closed  shop  is  a  device  absolutely  essential  to 
the  rigid  and  wide  enforcement  of  union  rules. 

Secondly,  those  who  uphold  the  closed  shop  affirm  that  it  tends 
to  create  a  greater  esprit  de  corps  among  the  men  than  the  open 
shop  does.  Union  and  non-union  men  represent  two  diametrically 
opposed  ideas.  The  first  stand  for  collective,  the  second  for  indi- 
vidual action.  Consequently,  there  is  constant  conflict  between  the 
two  in  the  endeavor  to  obtain  control  over  a  shop.  Because  his  men 
do  not  co-operate,  the  employer  is  likely  to  lose  money.  Therefore 
as  a  business  necessity  open  shops  must  become  either  un.on  or  non- 
union. That  there  should  be  ill-feeling  between  union  and  non- 
union men  is  easily  understood  when  we  consider  why  unions  desire 
the  closed  shop.  Non-union  men  are  the  economic  enemies  of 
unionists  as  long  as  employers  resort  to  individual  bargaining  or 
express  a  dislike  for  full  union  control.  In  particular,  efforts  are 
put  forth  to  make  the  employment  of  "scabs"  unprofitable. 

Finally,  unionists  say  that  the  closed  shop  is  advantageous  -to 
employers  because  in  many  unions  it  carries  with  it  the  privilege  of 
using  a  label  that  has  a  distinct  market  value.  No  union  solicits 
work  for  an  open  shop.  A  label,  however,  is  an  advantage  to  an 
employer  only  under  certain  conditions.  It  can  be  used  to  best 
advantage  on  articles  largely  purchased  by  the  laboring  classes.  That 
a  label  increases  sales  on  such  goods  is  evidenced  by  the  fact  that 
manufacturers,  solely  for  the  purpose  of  obtaining  the  use  of  the 
label,  have  often  asked  that  their  establishments  be  unionized.  The 
labor  journals  not  infrequently  contain  statements  from  employers 
that  the  closed  shop  is  a  "good  business  proposition."  But  the  label 
rarely  effects  an  increase  in  the  demand  for  expensive  goods  or  for 
articles  sold  to  women.  It  is  evident,  therefore,  that  the  number  of 
employers  who  can  find  an  advantage  in  the  use  of  the  labels  is  small 
relative  to  the  total  number  of  employers. 

To  sum  up  the  arguments  against  the  closed  shop  on  the  ground 
that  it  affects  unfavorably  the  economic  conduct  of  industry,  it  may 
be  said  that  the  crux  of  the  question  is  whether  or  not  the  "right  to 
hire  and  discharge"  is  unduly  restricted  under  the  closed  shop.  The 
employer  may  enjoy  the  use  of  a  \'^luable  label  and  may  be  placed 
on  a  "fair  competitive  basis"  with  other  employers.  Individually  the 
employer  may  reap  a  gain.     But  in  the  long  run  industry  will  be 


TRADE  UNIONISM  613 

carried  on  less  efficiently  if  by  waiting  lists  or  other  restrictive 
devices  the  union  interferes  with  the  employer's  hiring  and  discharg- 
ing his  working  force  in  accordance  with  his  best  judgment. 

296.     The  Ethics  of  the  Closed  Shop" 

BY  JAMES  H.  TUFTS 

In  certain  industries  in  which  the  workmen  are  well  organized 
they  have  made  contracts  with  employers  which  provide  that  only 
union  men  shall  be  employed.  The  psychological  motive  for  the  de- 
mand for  the  closed  shop  is  natural  enough ;  the  union  has  succeeded 
in  gaining  certain  advantages  in  hours  or  wages  or  both;  this  has 
required  some  expense  and  perhaps  some  risk.  It  is  natural  to 
feel  that  those  who  get  the  advantage  should  share  the  expense  and 
effort,  and  failing  this,  should  not  be  admitted  to  the  shop.  If  the 
argument  stopped  here  it  would  be  insufficient  for  a  moral  justifica- 
tion for  two  reasons.  First,  joining  a  union  involves  much  more 
than  payment  of  dues.  It  means  control  by  the  union  in  ways  which 
may  interfere  with  obligations  to  family,  or  even  to  the  social  order. 
Hence,  to  exclude  a  fellow  workman  from  the  opportunity  to  work 
because  he — perhaps  for  conscientious  reasons — would  not  belong  to 
the  union,  could  not  be  justified  unless  the  union  could  make  it  ap- 
pear that  it  was  maintaining  a  social  and  not  merely  a  group  inter- 
est. Second,  in  some  cases  unions  have  sought  to  limit  output.  In 
so  far  as  this  is  done,  not  for  reasons  of  health,  but  to  raise  prices, 
the  union  is  opposing  the  interest  of  consumers.  Here  again  the 
union  must  exhibit  a  social  justification  if  it  is  to  gain  social  approval. 

On  the  other  hand,  it  may  be  noted  that  the  individualist  who 
believes  in  the  competitive  struggle  as  a  moral  process  has  no  ground 
on  which  to  declare  for  "open  shop."  Exactly  the  same  principle 
which  would  permit  combination  in  capital  and  place  no  limit  on 
competitive  pressure,  provided  it  is  all  done  through  free  contracts, 
can  raise  no  objection  against  combinations  of  laborers  making  the 
best  contracts  possible.  When  a  syndicate  of  capitalists  has  made 
a  highly  favorable  contract  or  successfully  underwritten  a  large 
issue  of  stock,  it  is  not  customary  under  the  principle  of  "open 
shop"  to  give  a  share  in  the  contract  to  all  who  ask  for  it,  or  to  let 
the  whole  public  in  "on  the  ground  floor."  Nor  are  capitalists  ac- 
customed to  leave  a  part  of  the  market  to  be  supplied  by  some  com- 
petitor for  fear  such  competitor  may  suffer  if  he  does  not  have 

"Adapted  from  Ethics,  by  John  Dewey  and  fames  H.  Tufts,  pp.  559-561. 
Copyright  by  Henry  Holt  &  Co.  (1909). 


6i4  CURRENT  ECONOMIC  PROBLEMS 

business.  When  the  capitalist  argues  for  the  open  shop  upon  the 
ground  of  freedom  and  democracy,  it  seems  like  the  case  of  the 
mote  and  the  beam. 

An  analogy  with  a  political  problem  may  aid :  Has  a  nation  the 
right  to  exclude  (or  tax  heavily)  goods  or  persons  from  other  coun- 
tries ?  May  it  maintain  a  "closed  shop"  ?  The  policy  of  the  Amer- 
ican colonists  and  of  the  United  States  has  varied.  The  Puritans 
maintained  a  "closed  shop"  on  religious  lines.  They  came  to  this 
country  to  maintain  a  certain  religion  and  polity.  They  expelled 
several  men  who  did  not  agree  with  them.  The  United  States  ex- 
cludes Chinese  laborers,  and  imposes  a  tariff  which  in  many  cases 
is  intended  to  be  prohibitive  against  the  products  of  other  countries. 
This  is  done  avowedly  to  protect  the  laborer,  and  in  so  far  as  it  is 
effective  it  closes  the  shop.  The  maxim,  "This  is  a  white  man's 
country,"  is  a  similar  "closed  shop"  utterance.  On  moral  grounds 
the  non-union  man  is  in  the  same  category  as  the  man  of  alien  race 
or  country.  What,  if  anything,  can  justify  a  nation  or  group  from 
excluding  others  from  its  benefits?  Clearly  the  only  conditions  are 
(i)  that  the  group  or  nation  is  existing  for  some  morally  justifiable 
end,  which  (2)  would  be  endangered  by  the  admission  of  the  out- 
siders. A  colony  established  to  work  out  religious  or  political  lib- 
erty would  be  justified  in  excluding  a  multitude  who  sought  to  en- 
ter it  and  then  subvert  these  principles.  If  a  union  is  working  for  a 
morally  valuable  end,  e.  g.,  a  certain  standard  of  living  which  is 
morally  desirable,  and  if  this  were  threatened  by  the  admission  of 
non-union  men,  the  closed  shop  would  seem  to  be  justified.  If  the 
purpose  were  merely  to  secure  certain  advantages  to  a  small  group, 
and  if  the  open  shop  would  not  lower  the  standard  but  merely  extend 
its  range  of  benefits,  it  is  hard  to  see  why  the  closed  shop  is  not  a 
selfish  principle — though  no  more  selfish  than  the  grounds  on  which 
the  tariff  is  usually  advocated. 

E.     THE  WEAPONS  OF  INDUSTRIAL  CONFLICT 
297.     The  Function  of  the  Strike  in  Collective  Bargaining" 

BY  JOHN  MITCHELL 

The  normal  condition  of  industry  is  peace.  The  average  work- 
ingman,  engaged  in  industries  in  which  strikes  occur,  loses  less  than 
a  day  a  year  in  this  manner.  A  strike  lasts  upon  the  average  about 
twenty-three  days,  but  the  average  employer  carries  on  his  business 

"Adapted  from  Organised  Lobor,  299-306,  Copyright  by  the  American 
Book  and  Bible  House  (1903). 


TRADE  UNIONISM  615 

for  thirty  years  without  a  strike.  The  average  lockout  lasts  ninety- 
seven  days,  but  of  a  thousand  establishments,  less  than  two  declare 
a  lockout  in  the  course  of  a  year. 

A  strike  is  simply  a  method  of  bargaining.  If  the  grocers  of  a 
city  would  refuse  to  sell  their  sugar  for  less  than  seven  cents  a 
pound  and  the  customers  would  refuse  to  pay  more  than  six,  exactly 
the  same  thing  would  occur  as  happens  in  an  ordinary  strike.  A 
strike  does  not  necessarily  involve  any  form  of  bitterness ;  it  merely 
represents  a  difference  between  what  the  buyer  of  labor  is  willing 
to  offer,  and  what  the  seller  of  labor  is  willing  to  accept.  Until  the 
buyer  and  seller  of  an  ordinary  commodity  agree  as  to  price  and 
conditions  no  sale  can  be  effected.  Until  the  wages  and  conditions 
of  work  are  agreed  upon  and  acceded  to  by  both  employer  and 
workman,  the  industry  must  stop. 

Strikes  thus  result  from  a  failure  to  make  a  bargain  or  contract 
by  men  who  are  free  to  contract.  Strikes  cannot  exist  before  free- 
dom of  contract  is  accorded.  The  present  conception  of  a  strike  is 
that  of  workmen  and  employers  exercising  their  undoubted  right  to 
refuse  to  enter  into  contracts  where  the  conditions  are  not  satis- 
factory to  them. 

It  is  frequently  stated  that  trade  unions  desire  strikes  because 
they  are  organized  for  that  purpose.  This  is  not  true.  The  trade 
union  is  organized  for  the  purpose  of  securing  better  conditions  of 
life  and  labor  for  its  members,  and,  when  necessary,  a  strike  is  re- 
sorted to  as  a  means  to  that  end.  The  same  conditions  which  cause 
the  creation  of  trade  unions  are  equally  answerable  for  the  constant 
demand  for  improved  conditions  for  the  working  class,  which 
demand  frequently  voices  itself  in  strikes. 

Strikes  are  to  be  avoided  in  all  cases  where  the  object  desired  can 
be  obtained  by  peaceful  negotiation.  There  is  nothing  immoral, 
however,  in  the  workingman's  striking,  just  as  there  is  nothing  im- 
moral in  his  wanting  higher  wages. 

298.     The  Utility  of  the  Strike" 

BY  FRANK  JULIAN  WARNE 

A  Strike  is  simply  a  piece  of  industrial  machinery,  if  it  may  be  so 
termed,  which  the  organization  of  the  Trade  Union  provides  for 
the  attainment  of  well-defined  and  laudable  objects.  Its  operation 
does  not  necessarily  mean  the  violation  of  law,  or  the  destruction 

^•Adapted  from  The  Coal-Mine  Workers,  154-158.  Copyright  by  Long- 
mans, Green.  &  Co.   (1905). 


6i6  CURRENT  ECONOMIC  PROBLEMS 

of  property,  or  the  taking  of  human  life.  All  these,  where  in  evi- 
dence, are  unforeseen  incidents  to  the  conduct  of  a  great  strike  for 
any  long  period,  and  are  the  manifestations  of  aroused  human 
passion  and  class  hatred.  No  one  would  question  the  use  of  a 
revolver  in  the  hands  of  a  husband  defending  his  wife  and  children 
and  home  from  the  violation  of  its  sanctity  by  outlaws,  but  most  of 
us  would  condemn  the  employment  of  the  same  weapon  in  the  hands 
of  the  outlaws  for  the  accomplishment  of  their  designs.  And  yet 
the  weapon  in  both  cases  is  a  revolver.  So  it  is  with  the  Strike;  it 
is  simply  a  weapon  for  the  attaining  of  certain  well-defined  ends. 
In  the  hands  of  men  defending  their  Standard  of  Living  from  the 
cupidity  and  inhumanity  of  particular  members  of  the  employing 
class,  the  Strike  is  of  the  very  greatest  social  value.  But  like  the 
revolver,  it  can  be  misused,  as  in  the  case  of  self-seeking  individuals 
masquerading  under  trade-union  principles,  but  because  of  that 
misuse  the  weapon  should  not  be  condemned.  It  is  no  more  possible 
for  the  Trade  Union  to  prevent  the  Strike  from  falling  into  the 
hands  of  those  who  misuse  it,  than  it  is  for  the  Law  to  prevent 
revolvers  from  coming  into  the  possession  of  outlaws.  The  Strike 
has  performed  and  will  continue  to  perform  a  most  useful  function 
in  the  progress  of  the  trade-union  movement,  and  consequently  in 
the  onward  march  of  American  civilization. 

It  is  true  that  the  course  of  the  labor  movement  has  been  marked 
by  the  taking  of  human  life  and  the  destruction  of  property,  just  as 
has  been  the  case  in  the  creation  of  the  State  and  the  establishment 
of  the  Church.  The  why  and  the  wherefore  are  easily  to  be  ex- 
plained in  the  theory  of  the  adjustment  of  the  principles  of  new 
institutions  to  those  created  for  society  by  older  established  ones. 
This  is  not  said  as  an  apology  for  the  taking  of  human  life  in  strikes. 
No  one  regrets  this  manifestation  of  the  progress  of  the  Trade 
Union  more  than  does  the  writer,  and  yet  if  he  had  to  choose  be- 
tween preserving  the  lives  that  have  .been  so  lost  and  retaining  the 
Trade  Union  as  an  institution,  it  would  not  be  in  favor  of  the 
former.  This  decision  would  be  made  in  the  firm  belief  that  in  the 
attainment  of  its  objects — in  throwing  more  safeguards  around  the 
workingman,  especially  in  hazardous  employments;  in  securing 
better  sanitary  arrangements  in  factories  and  mills,  in  preventing 
the  employment  of  children  at  tender  ages,  in  securing  higher  wages, 
in  reducing  the  hours  of  employment,  in  raising  the  Standard  of 
Living,  and  in  innumerable  other  ways — in  these  directions  the 
Trade  Union  is  saving  for  society  more  lives  than  have  been  taken 
in  all  the  industrial  conflicts  of  which  history  gives  any  record. 


TRADE  UNIONISM  617 

The  Strike  justifies  itself  either  as  a  weapon  of  offense  or  defense 
in  the  protection,  as  a  last  recourse,  of  the  Standard  of  Living  of  the 
American  vvorkingman.  It  is,  economically,  simply  the  refusal  of  a 
number  of  workingmen,  usually  organized  in  an  association,  to  sell 
their  labor  for  less  than  a  stipulated  price  or  to  work  under  other 
than  specified  conditions  of  employment,  coupled  with  the  refusal 
of  the  purchaser  of  that  labor — the  employer — to  accede  to  the 
demands. 


299.     The  Striker  and  the  Worker*^ 

BY  SOLON  LAUER 

I  am  perfectly  willing  that  you  should  quit  your  job,  whenever 
you  do  not  like  it.  You  may  quit  individually,  or  you  may  all  quit 
by  agreement.  It  may  cause  your  employers  and  us,  the  public,  much 
inconvenience  and  expense;  but  I  do  not  see  how  we  can  refuse 
you  that  right  if  you  choose  to  exercise  it. 

But  there  your  rights  cease.  If,  now,  your  employers  can  find 
other  men  to  take  your  places,  why  shall  they  not  do  so  ?  Have  not 
these  men  as  good  a  right  to  work  as  you  have  to  refuse  to  work? 
And  will  you  march  upon  them  with  stones  and  clubs,  and  assault 
them  with  dynamite,  in  order  that  you  may  carry  your  point  with 
your  employers  ?  When  you  play  the  Dog  in  the  Manger,  my  broth- 
ers, there  is  nothing  for  it  but  to  beat  you  into  submission.  Eternal 
Justice,  seated  calm  and  impassive  above  all  our  petty  quarrels,  de- 
mands it.  If  the  machinery  of  Justice  be  not  wholly  wrecked  and 
ruined  here  below,  it  must  be  set  in  motion  against  your  selfish  plot. 

This  is  not  my  affair.  I  can  get  on  without  your  cars.  Legs 
were  before  electrics.  If  there  were  nothing  but  my  interests  in- 
volved, or  those  of  my  neighbors,  you  and  your  employer  should  sit 
growling  at  one  another,  or  fly  at  each  other's  throat,  until  one  or 
other  were  wholly  vanquished  and  demolished.  But  there  are  the 
Rights  of  Man  to  be  considered;  yea,  the  Rights  of  the  Working- 
man,  which  ought  to  be  most  dear  to  your  hearts.  You  do  not  want 
these  jobs  on  the  present  terms.  These  men  do  want  them,  having 
until  now  none  at  all,  or  worse  ones.  Shall  their  rights  be  ignored 
and  violated,  that  you  may  carry  your  point  ? 

"From  Social  Laws,  189-190.  Published  by  the  Nike  Publishing  Co. 
(1901). 


6i8  CURRENT  ECONOMIC  PROBLEMS 

300.     Wanted — Jobs  Breaking  Strikes^* 

We  break  strikes — also  handle  labor  troubles  in  all  their  phases. 
We  are  prepared  to  place  secret  operatives  who  are  skilled  mechan- 
ics in  any  shop,  mill  or  factory,  to  discover  whether  organization  is 
being  done,  material  wasted  or  stolen,  negligence  on  the  part  of  em- 
ployees, etc.,  etc We  guard  property  during  strikes, 

employ  non-union  men  to  fill  places  of  strikers,  fit  up  and  maintain 
boarding-houses  for  them,  etc.  Branches  in  all  parts  of  the  coun- 
try. Write  us  for  references  and  terms.  The  Joy  Detective  Agency, 
Incorporated,  Cleveland,  Ohio. 

301.    The  Efficacy  of  Secret  Service" 

Secret  service  properly  applied  with  the  right  men  correctly 
placed  can  be  made  extremely  profitable  when  conditions  are  studied 
and  co-operation  given.  Such  service  is  our  specialty,  and  for  that 
reason  we  maintain  practical  men  of  all  trades  and  occupations,  both 
union  and  non-union.  In  their  daily  reports  they  suggest  improve- 
ments and  new  ideas ;  also  detail  the  agitating,  dishonest,  non-pro- 
ducing, and  retarding  conditions. 

Our  operative,  when  engaged  by  you,  is,  to  everyone  but  your- 
self, merely  an  employee  in  your  establishment,  and  whatever  he 
receives  as  wages  is  credited  as  part  payment  for  his  detective  serv- 
ice. Daily  typewritten  reports  are  mailed  to  our  clients.  These 
operatives  are  continually  under  direct  supervision  of  the  manage- 
ment of  this  agency. 

Within  the  heart  of  your  business  is  where  we  operate,  down  in 
the  dark  corners,  and  in  out-of-the-way  places  that  cannot  be  seen 
from  your  office  or  through  your  superintendent  or  foreman. 

If  it  is  of  interest  to  you  to  know  today  what  occurred  in  your 
plant  yesterday,  and  be  in  a  position  to  correct  these  faults  tomor- 
row, we  would  be  pleased  to  take  the  matter  up  with  you  further,  and 
respectfully  ask  an  interview  for  one  of  our  representatives. 

302.     The  Boycott  of  the  Butterick  Company" 

BY  A.  J.   PORTE NAR 

It  was  my  fortune  to  take  a  very  active  part  in  the  boycott  insti- 
tuted against  the  products  of  the  Butterick  Company  by  Typographi- 

**Adapted  from  an  advertisement  appearing  in  American  Industries, 
August  15,  1907. 

"This  letter  is  alleged  to  have  been  sent  out  by  the  William  J.  Burns 
Detective  Agency.  Quoted  from  Laidler,  Boycotts  and  the  Labor  Struggle, 
29s. 

*" Adapted  from  Organised  Labor,  90-92.  Copyright  by  the  Macmillan 
Company  (1912). 


TRADE  UNIONISM  619 

cal  Union  No.  6  in  1906,  and  later  carried  on  by  the  International 
Typographical  Union.  This  boycott  was,  I  verily  believe,  better 
organized,  more  determined,  and  more  damaging  to  the  parties  it 
was  aimed  at  than  any  other  I  have  knowledge  of,  not  excepting  that 
against  the  Buck  Stove  and  Range  Company,  which  is  more  widely 
known  only  because  of  the  adventitious  circumstances  that  brought 
the  highest  ofticials  of  the  American  Federation  of  Labor  into 
court.  Not  only  in  the  United  States  and  Canada,  but  in  Cuba, 
Germany,  and  Australia,  the  International  Typographical  Union  cut 
into  the  sales  and  captured  the  customers  of  the  Butterick  Company. 
Wherever  a  typographical  union  was  organized,  there,  in  greater 
or  less  degree,  the  boycott  was  pushed.  The  expected  court  pro- 
ceedings were  in  evidence  at  all  times.  There  were  arrests,  injunc- 
tions, actions  for  criminal  contempt.  In  short  I  doubt  if  a  more 
thorough  trial  of  the  efficiency  of  the  boycott  has  ever  been  made. 

Now  what  about  results?  That  the  Butterick  people  were  con- 
siderably damaged  they  themselves  admitted.  Eventually  the  But- 
terick house  was  unionized  again,  but  it  is  not  possible  for  us  to  say 
to  what  extent  the  boycott  was  responsible  for  that  consummation. 
It  is  within  my  knowledge,  however,  that  it  had  been  decreasing  in 
intensity  for  two  years  before  an  agreement  with  the  company  was 
reached,  in  191 1,  and  that  at  the  time  of  settlement  the  boycott  was 
practically  dormant. 

I  was  very  active  in  this  matter,  and  from  the  experience  thus 
gained  I  have  reached  definite  conclusions.  We  expended  a  large  ' 
amount  of  money;  how  large  I  do  not  know.  There  was  a  con- 
tinuous distribution  of  printed  matter  and  of  comparatively  expen- 
sive novelties  bearing  appropriate  inscriptions.  There  were  speakers 
sent  to  tour  the  country.  There  was  an  organizer  whose  sole  duty 
it  was  to  further  the  boycott.  There  was  a  prominent  lawyer 
engaged  by  the  year.  So  far  as  money  could  compass  our  object, 
we  were  not  niggardly.  But  money  is  only  one  of  the  essential 
factors  a  union  needs  in  the  conduct  of  an  affair  of  this  kind.  Far 
more  than  money,  it  must  have  the  enthusiastic  devotion  of  its 
members  to  the  continuous,  laborious,  and  unpleasant  work  needful 
to  make  the  expenditure  of  money  effective.  This,  with  a  few 
exceptions,  I  found  it  impossible  to  get.  And  even  these  few,  in  the 
course  of  time,  finding  themselves  unsupported  by  the  great  majority, 
began  to  get  lukewarm,  and  at  last  ceased  to  labor  in  a  field,  so  vast 
and  so  deserted.  It  was  not  that  we  had  no  success;  the  Butterick 
Company  is  the  best  witness  to  the  contrary.  But  it  is  scarcely 
believable  how  unremittingly  we  had  to  labor  to  save  what  we  had 


620  CURRENT  ECONOMIC  PROBLEMS 

done  one  day  from  becoming  useless  the  next.  And  this  fact  eventu- 
ally led  to  the  abandonment  of  the  boycott  and  the  slow  recovery 
by  the  Butterick  Company  of  the  ground  it  had  lost.  Therefore  my 
opinion  is  that  no  boycott  can  completely  and  permanently  accom- 
plish the  result  sought,  and  very  few  will  do  nearly  so  much  in  that 
direction  as  the  one 'here  spoken  of,  which  finally  became  a  failure. 

303.     Ostracism  as  an  Industrial  Weapon^^ 

BY  FRANK  JULIAN  WARNS 

In  controlling  the  ordinary  supply  of  labor  in  the  industry,  com- 
mittees of  union  m.en  visit  personally  every  man  employed  who  has 
not  already  been  captured  by  the  organizers,  and  his  position  is 
definitely  ascertained.  This  is  one  of  the  most  important  uses  of 
picketing,  by  means  of  which  men  are  met  on  their  way  to  and  from 
work.  To  the  employees  continuing  at  work  the  pickets  at  first  have 
recourse  to  the  powers  of  friendly  and  peaceable  persuasion,  but  if 
these  fail  to  induce  the  men  to  join  the  union,  or,  if  not  this,  at 
least  to  remain  away  from  work,  then  upon  the  non-union  men  are 
brought  to  bear  social  forces  verging  upon  lawlessness,  and  over- 
stepping the  safeguards  the  State  has  thrown  around  individual 
liberty,  which  only  a  strong  public  sympathy  with  the  cause  of  the 
union  will  support.  The  most  important  of  these  social  forces  is 
ostracism. 

Ostracism  is  a  stronger  social  force  in  maintaining  a  high  stand- 
ard of  personal  conduct  than  most  of  us  realize.  It  means  banish- 
ment or  exclusion  from  social  intercourse  or  favor,  and  is  usually 
employed  by  a  particular  group  against  members  of  its  own  class  or 
craft.  Its  most  effective  weapon  is  some  term  of  reproach  coined  for 
the  purpose.  Lawyers,  for  example,  who  do  not  come  up  to  the 
standard  set  for  that  profession  by  its  dominant  group,  are  ostracised 
and  termed  "shysters."  So  it  is  with  the  medical  profession :  physi- 
cians engaged  in  questionable  practices  which  the  dominant  group 
denounce  are  ostracised  by  the  more  reputable  practitioners  with  the 
reproachful  term  "quack."  The  same  social  force  is  at  work  among 
the  industrial  classes.  Union  men  set  a  standard  as  to  wages  and 
conditions  of  employment  in  a  particular  industry,  and  those  work- 
ingmen  who  fall  below  that  measurement,  in  offering  their  labor  for 
a  less  price,  are  ostracised  and  denounced  as  "scabs."  Whether  the 
group  be  doctors  or  lawyers  or  workingmen,  whatever  it  adopts  as 

'^Adapted  from  The  Coal-Mine  Workers,  160-165.  Copyright  by  Long- 
mans, Green,  &  Co.  (1905). 


TRADE  UNIONISM  621 

the  standard  of  measuring  conduct  along  particular  lines  is  sooner 
or  later  taken  up  by  the  broader  social  grouping  in  the  community 
and  accepted  as  its  standard  of  judgment.  This  is  particularly  and 
strikingly  true  of  a  community  closely  identified  with  an  industry  the 
livelihood  of  whose  members  depends  upon  the  industry's  activities 
and  in  which  a  dominant  group  (usually  members  of  a  Trade  Union) 
creates  the  industrial  standard.  This  explains  the  attitude  of  hos- 
tility an  industrial  community  exercises  towards  the  "scab."  It  ex- 
plains, also,  perhaps,  how  men  far  removed  from  the  influence  of 
the  working  classes  can  look  upon  the  "scab"  as  a  hero. 

The  social  force  of  ostracism,  put  into  operation  by  the  working 
of  the  Trade  Union,  is  directed,  and  particularly  so  in  strike  times, 
not  only  against  the  "scab"  himself,  but  also  along  all  those  channels 
of  social  relations  affecting  him  and  which  might  have  influence 
upon  him  in  bringing  about  action  conformable  to  the  standard  of 
the  dominant  group.  The  strength  of  this  weapon  in  the  strike  of 
the  anthracite-mine  employees  in  1902  caused  union  men  and  their 
families  to  refuse  to  associate  with  the  workingman  who  continued 
his  employment  in  the  mines;  it  expelled  a  prominent  and  other- 
wise highly  respected  citizen  from  a  benevolent  society  which  had 
for  its  object  the  assisting  of  sick  members  and  the  defraying  of  a 
part  of  the  funeral  expenses  of  those  who  died,  and  of  which  he  had 
been  a  member  in  good  standing  for  more  than  twenty-seven  years ; 
it  caused  children  of  striking  mine  workers  not  only  to  refuse  to 
attend  the  school  of  a  woman  teacher  whose  aged  father  was  a 
watchman  at  one  of  the  mines,  but  they  also  demanded  that  she  be 
discharged.  Children  of  union  miners  would  not  attend  Sunday- 
school  with  their  former  playmates  whose  relatives  continued  at 
work;  members  of  the  Lacemakers'  Union  employed  at  a  silk-mill 
refused  to  work  alongside  girls  whose  fathers  and  brothers  would 
not  strike;  clerks  were  dismissed  from  stores  and  business  estab- 
lishments because  they  were  related  to  men  who  continued  at  work 
in  the  mines ;  even  promises  of  marriage  were  broken  through  rela- 
tives of  one  or  the  other  of  the  contracting  parties  being  non-union 
workers.  The  "scab"  was  not  infrequently  held  up  to  public  scorn 
and  ridicule  by  the  publication  of  his  name  in  the  "unfair  list"  of 
the  newspapers  in  the  mining  towns  as  being  "unfit  to  associate  with 
honorable  men;"  he  was  represented  by  name  on  signs  attached  to 
effigies  dangling  from  electric-light,  telegraph,  and  telephone  poles 
and  wires  and  from  trees  in  front  of  his  home  and  along  the  high- 
ways and  streets ;  a  grave  in  his  yard  with  his  name  placed  upon  the 
board  at  the  head  to  represent  a  tombstone  not  infrequently  con- 
fronted him ;  the  sign  of  "the  skull  and  cross-bones"  was  painted  on 


622  CURRENT  ECONOMIC  PROBLEMS 

his  house,  and  in  innumerable  other  ways,  conceivable  only  by  work- 
ingmen  whose  imaginative  faculties  have  been  aroused  by  the  desire 
for  persecution  of  others  who  oppose  a  cause  which  is  so  vital  to 
their  home  and  family,  was  created  a  public  sentiment  against  the 
non-union  employee. 

304.    The  Scab^'^ 
BY  dye;r  d,  lum 

The  non-unionist  is  but  an  indirect  enemy;  in  withholding  his 
aid  he  by  so  much  weakens  the  common  line  of  defense.  Though 
often  his  acts  may  directly,  without  conscious  effort,  aid  the  enemy, 
he  need  not  be  a  traitor  to  his  fellow  toilers.  Every  great  move- 
ment has  some  object  of  superlative  loathing;  its  Judas  Iscariots, 
its  Benedict  Arnolds,  its  Pigotts,  its  paid  spies  and  informers,  its 
Pinkerton  thugs — men  deaf  to  all  honor,  blind  to  mutual  interest, 
dead  to  all  but  the  miserable  cravings  of  their  shriveled  souls.  In 
the  industrial  conflict  the  instinct  of  workers  has  significantly  termed 
its  type  of  this  species  "scab !"  Loud  have  been  the  appeals  for  sym- 
pathy with  the  workman  who  falls  out  from  the  line  to  better  his  con- 
dition, or  relieve  the  distress  of  a  starving  wife  and  family.  But 
to  prevent  just  such  contingencies  is  the  mission  of  the  union.  One 
who  is  forced  to  the  necessity  of  wage  labor  and  refuses  to  share 
the  common  danger,  but  either  openly  or  stealthily  goes  over  to  the 
enemy  to  accept  his  terms,  is  a  deserter.  By  his  act  he  has  sundered 
the  social  bonds  of  mutual  interest  which  united  him  to  us,  has 
served  notice  that  he  asks  no  aid,  expects  no  sympathy,  seeks  no 
quarter.    At  his  acted  zvord  we  take  him. 

The  time  has  passed  for  circumlocution  in  handling  this  subject. 
If  Trade-Unionism  has  a  logical  ground  for  existence,  if  organized 
resistance  is  preferable  to  slavish  submission,  if  the  social  ties  which 
unite  us  in  mutual  alliance  are  of  higher  validity  than  the  selfish 
cravings  of  an  unsocial  nature,  the  relation  between  the  Trade- 
Union  and  its  psycophantic  enemy,  the  "scab,"  is  that  existing  be- 
tween the  patriot  and  the  paid  informer.  No  sentimentalism  will 
attenuate,  no  olive  branch  will  be  extended;  no  tears  will  be  shed 
over  whatever  misfortune  befalls  him,  nor  aught  but  utter  loathing 
be  felt  for  him.  He  stands  forth  by  his  own  act  recreant  to  duty. 
He  is  bankrupt  in  honor,  infidel  to  faith,  destitute  of  social  sym- 
pathy, and  a  self -elected  target.  We  here  but  express  clearly  what 
workingmen  feel  in  every  industrial  crisis,  and  we  deliberately  ex- 
press it  that  at  all  times  such  men  be  regarded  as  possible  "inform- 
ers" and  traitors. 

•'Adapted  from  Philosophy  of  Trade  Unions,  13-14.  Published  by 
American  Federation  of  Labor  (1892). 


TRADE  UNIONISM  623 

But  let  us  hear  his  defense.  We  are  told  that  Trade-Unionism 
is  an  encroachment  upon  individual  right,  that  the  toiler,  whether 
union  or  non-union,  has  the  privilege  to  sell  his  labor  as  best  suits 
himself.  To  this  we  reply:  (1)  The  toiler  does  not  enter  the 
market  under  equal  conditions.  (2)  Monopoly  over  land,  the 
source  of  wealth,  and  over  exchange,  its  medium  of  distribution, 
gives  to  the  capitalist  an  economic  advantage  in  the  struggle.  (3) 
The  legalization  of  privilege  forces  upon  the  unprivileged  the  neces- 
sity of  combination  in  order  to  sustain  themselves.  (4)  The  logic 
of  events  has  settled  the  line  of  action ;  it  lies  neither  in  the  prayer- 
meeting  nor  in  the  polling-booth,  but  in  mutual  accord  of  action  and 
determined  self-help. 

Industrial  combination,  under  such  circumstances,  is  as  neces- 
sary for  the  exploited  toiler,  as  military  organization  for  an  invaded 
people.  We  are  in  a  state  of  industrial  war.  Every  appeal  to  legis- 
lation to  do  aught  but  undo  is  as  futile  as  sending  a  flag  of  truce  to 
the  enemy  for  munitions  of  war.  The  growth  of  solidarity  evi- 
denced in  wider  federation,  in  leading  to  broader  views  of  the  issue, 
and  deeper  sense  of  interrelations,  can  but  intensify  this  feeling  to- 
ward the  "scab." 

Unions  have  already  demonstrated  their  power  to  rise  above  the 
subsistence  level,  where  otherwise  they  would  be.  It  is  our  duty, 
not  only  to  ourselves,  but  to  our  families,  to  enlarge  the  scope  of 
union  among  our  fellow  craftsmen.  Our  task  is  to  be  true  to  the 
need  of  the  hour  in  order  to  be  the  better  fitted  for  the  unknown 
needs  of  the  struggle  tomorrow.  The  lines  are  being  closer  drawn, 
and  the  exigencies  of  the  situation  demand  concert  of  action,  both 
against  the  combined  enemy  and  the  traitor  who  would  betray  our 
cause  by  a  shot  from  the  rear.  In  such  a  struggle  for  a  higher 
civilization — a  struggle  forced  upon  us — the  industrial  recreant  is 
a  social  traitor. 

Out  of  conflict  all  progress  has  come.  The  history  of  the  Labor 
Movement,  its  increasing  self-reliance,  its  growing  indiflference  to 
"labor  politicians,"  its  development  of  sturdy  independence  and 
manhood,  all  alike  indicate  change  in  its  methods  among  future  pos- 
sibilities. But  with  all  this,  and  its  accompanying  wider  sympathy 
and  extension  of  mutual  ties,  the  feeling  of  loathing  toward  the 
"scab"  has  intensified. 

To  sum  up,  to  assert  egoism  against  mutual  interests  is  unsocial 
and  hence  a  denial  of  the  mutual  basis  upon  which  equitable  rela- 
tions alone  can  exist.  Thus  the  "scab"  is  not  merely  unsocial,  but  by 
his  acted  word  virtually  places  himself  with  the  industrial  invaders 


624  CURRENT  ECONOMIC  PROBLEMS 

and  becomes  an  enemy.  Equal  freedom  cannot  be  strained  to  mean 
a  denial  of  mutual  interests.  Social  evolution  is  not  a  mere  theory, 
but  a  record  of  facts,  and  no  fact  is  more  strongly  brought  out  than 
that  progress  has  resulted  only  in  so  far  as  mutual  interests  have 
been  recognized.    We  do  not  institute  them,  they  compel  us. 

Therefore,  primarily  as  human  beings,  become  so  by  social  evo- 
lution, and  by  the  social  environment  in  which  the  present  struggle 
is  conditioned,  and  recognizing  as  the  goal  of  industrial  advance  the 
mutuality  of  interests  involved  in  the  assertion  of  equal  freedom,  in 
strict  accord  with  all  sociological  deductions,  and  with  the  utmost 
submission  to  the  higher  law  permeating  social  growth,  we  rever- 
ently raise  our  hats  to  say  prayerfully :    "To  hell  with  the  'scab' !" 

F.     SCIENTIFIC  MANAGEMENT  AND  UNIONISM 
305.     Labor  and  Efficiency^' 

BY  FREDERICK  W.  TAYLOR 

It  is  safe  to  say  that  no  system  or  scheme  of  management  should 
be  considered  which  does  not  in  the  long  run  give  satisfaction  to 
both  employer  and  employee,  which  does  not  make  it  apparent  that 
their  best  interests  are  mutual,  and  which  does  not  bring  about  such 
thorough  and  hearty  co-operation  that  they  can  pull  together  instead 
of  apart.  It  cannot  be  said  that  this  condition  has  as  yet  been  at  all 
generally  recognized  as  the  necessary  foundation  for  good  manage- 
ment. On  the  contrary,  it  is  still  quite  generally  regarded  as  a  fact 
by  both  sides  that  in  many  of  the  most  vital  matters  the  best  in- 
terests of  employers  are  necessarily  opposed  to  those  of  the  men.  In 
fact,  the  two  elements  which  we  will  all  agree  are  most  wanted  on 
the  one  hand  by  the  men  and  on  the  other  hand  by  the  employers 
are  generally  looked  upon  as  antagonistic. 

What  the  workmen  want  from  their  employers  beyond  anything 
else  is  high  wages,  and  what  employers  want  from  their  workmen 
most  of  all  is  a  low  labor  cost  of  manufacture. 

These  two  conditions  are  not  diametrically  opposed  to  one  an- 
other as  would  appear  at  first  glance ;  on  the  contrary,  they  can  be 
made  to  go  together  in  all  classes  of  work,  without  exception,  and 
in  the  writer's  judgment  the  existence  or  absence  of  these  two  ele- 
ments forms  the  best  index  to  either  good  or  bad  management. 

The  only  condition  which  contains  the  elements  of  stability  and 
permanent  satisfaction  is  that  in  which  both  employer  and  employees 

""Adapted  from  "Shop  Management,"  in  the  Transactions  of  the  Society 
of  Mechanical  Engineers,  XXIV,  I343-I347  (i903). 


TRADE  UNIONISM  625 

are  doing  as  well  or  better  than  their  competitors  are  likely  to  do, 
and  this  in  nine  cases  out  of  ten  means  high  wages  and  low  labor 
cost,  and  both  parties  should  be  equally  anxious  for  these  condi- 
tions to  prevail.  With  them  the  employer  can  hold  his  own  with 
the  competitors  at  all  times  and  secure  sufficient  work  to  keep  his 
men  busy  even  in  dull  times.  Without  them  both  parties  may  do 
well  enough  in  busy  times,  but  both  parties  are  likely  to  suffer  when 
work  becomes  scarce. 

The  possibility  of  coupling  high  wages  with  a  low  labor  cost  rests 
mainly  upon  the  enormous  difference  between  the  amount  of  work 
which  a  first-class  man  can  do  under  favorable  circumstances  and 
the  work  which  is  actually  done  by  the  average  man. 

That  there  is  a  difference  between  the  average  and  first-class  man 
is  known  to  all  employers,  but  that  the  first-class  man  can  do  in 
most  cases  two  to  four  times  as  much  as  is  done  on  an  average  is 
known  to  but  few,  and  is  fully  realized  only  by  those  who  have 
made  a  thorough  and  scientific  study  of  the  possibilities  of  men. 

The  writer  has  found  this  enormous  difference  between  the 
first-class  and  average  man  to  exist  in  all  of  the  trades  and  branches 
of  labor  which  he  has  investigated,  and  this  covers  a  large  field,  as 
he,  together  with  several  of  his  friends,  has  been  engaged  with  more 
than  usual  opportunities  for  twenty  years  past  in  carefully  and  sys- 
tematically studying  this  subject. 

It  must  be  distinctly  understood  that  in  referring  to  the  possi- 
bilities of  a  first-class  man  the  writer  does  not  mean  what  he  can 
do  when  on  a  spurt  or  when  he  is  overexerting  himself,  but  what  a 
good  man  can  keep  up  for  a  long  term  of  years  without  injury  to 
his  health,  and  become  happier  and  thrive  under. 

The  second  and  equally  interesting  fact  upon  which  the  possi- 
bility of  coupling  high  wages  with  low  labor  cost  rests,  is  that  first- 
class  men  are  not  only  willing  but  glad  to  work  at  their  maximum 
speed,  providing  they  are  paid  from  30  to  100  per  cent  more  than 
the  average  of  their  trade. 

The  exact  percentage  by  which  the  wages  must  be  increased  in 
order  to  make  them  work  to  their  maximum  is  not  a  subject  to  be 
theorized  over,  settled  by  boards  of  directors  sitting  in  solemn  con- 
clave, nor  voted  upon  by  trade  unions.  It  is  a  fact  inherent  in 
human  nature  and  has  only  been  determined  through  the  slow  and 
difficult  process  of  trial  and  error. 

The  writer  has  found,  for  example,  after  making  many  mistakes 
above  and  below  the  proper  mark,  that  to  get  the  maximum  output 
for  ordinary  shop  work  requiring  neither  especial  brains,  very  close 
application,  skill,  nor  extra  hard  work,  such,  for  instance,  as  the 


626  CURRENT  ECONOMIC  PROBLEMS 

more  ordinary  kinds  of  routine  machine-shop  work,  it  is  necessary 
to  pay  about  30  per  cent  more  than  the  average.  For  ordinary  day 
labor  requiring  little  brains  or  special  skill,  but  calling  for  strength, 
severe  bodily  exertion  and  fatigue,  it  is  necessary  to  pay  from  50 
to  60  per  cent  above  the  average.  For  work  requiring  special  skill 
or  brains,  coupled  with  close  application  but  without  severe  bodily 
exertion,  such  as  the  more  difficult  and  delicate  machinist's  work, 
from  70  per  cent  to  80  per  cent  beyond  the  average.  And  for  work 
requiring  skill,  brains,  close  application,  strength,  and  severe  bodily 
exertion,  such,  for  instance,  as  that  involved  in  running  a  well-run 
steam  hammer  doing  miscellaneous  work,  from  80  per  cent  to  100 
per  cent  beyond  the  average.  Men  will  not  work  at  their  best  unless 
assured  a  good  liberal  increase,  which  must  be  permanent. 

It  is  the  writer's  judgment,  on  the  other  hand,  that  for  their 
own  good  it  is  as  important  that  workmen  should  not  be  very  much 
overpaid,  as  that  they  should  not  be  underpaid.  If  overpaid,  many 
will  work  irregularly  and  tend  to  become  more  or  less  shiftless,  ex- 
travagant, and  dissipated.  It  does  not  do  for  most  men  to  get  rich 
too  fast.  The  writer's  observation,  however,  would  lead  him  to  the 
conclusion  that  most  men  tend  to  become  more  instead  of  less 
thrifty  when  they  receive  the  proper  increase  for  an  extra  hard 
day's  work,  as,  for  example,  the  percentages  of  increase  referred  to 
above.  They  live  rather  better,  begin  to  save  money,  become  more 
sober,  and  work  more  steadily.  And  this  certainly  forms  one  of  the 
strongest  reasons  for  advocating  this  type  of  management. 

306.     The  Nature  of  Scientific  Management^* 

BY  MAURICE  L.  COOKE 

What  we  want  in  any  industrial  establishment,  if  we  are  to  reach 
the  highest  point  in  productivity,  is  to  have  every  individual  use  his 
highest  powers  to  the  best  advantage.  This  is  the  final  goal  of 
scientific  management.  It  is  the  goal  both  for  the  individual  and  for 
society.  If  you  can  picture  a  society  in  which  every  unit  is  using 
his  highest  faculties  to  the  best  advantage,  you  will  see  that  it  ap- 
proximates the  millennium. 

The  moment  you  adopt  this  as  a  standard,  however,  you  must 
frame  your  organization  so  that  every  employee,  from  the  humblest 
to  the  highest,  is  given  a  chance  to  exercise  his  highest  powers  to 
the  best  advantage.    He  must  not  only  not  be  hindered,  but  he  must 

"^Adapted  from  "The  Spirit  and  Social  Significance  of  Scientific  Man- 
agement," in  the  Journal  of  Political  Economy,  XXI,  485-487  (1913). 


TRADE  UNIONISM  627 

be  helped,  and  helped  to  the  extent  of  pointing  out  and  developing 
faculties  and  powers  of  which  he  may  have  been  unaware.  Under 
scientific  management  we  think  that  we  are  learning  how  to  do  this. 
Alfred  Marshall  has  called  attention  to  the  fact  that  perhaps  half 
the  brains  of  the  world  are  in  the  so-called  working  classes  and  that 
"of  this  a  great  part  is  fruitless  for  want  of  opportunity."  Under 
the  new  methods  this  great  storehouse  of  wealth  will  be  tapped,  not 
we  hope  for  the  benefit  of  the  few,  but  for  the  benefit  of  all. 

To  define  scientific  management  is  no  easy  task.  Hugo  Diemer 
says  that  Mr.  Taylor 

considers  a  manufacturing  establishment  just  as  one  would  an  intricate 
machine.  He  analyzes  each  process  into  its  ultimate  simple  elements  and 
compares  each  of  these  simplest  steps  or  processes  with  an  ideal  or  perfect 
condition.  He  then  makes  all  due  allowance  for  rational  and  practical  con- 
ditions and  establishes  an  attainable  commercial  standard  for  every  step.  The 
next  process  is  that  of  attaining,  continuously,  the  standard,  involving  both 
quality  and  interlocking,  or  assembling,  of  all  these  primal  elements  into  a 
well-arranged,  well-built,  smooth-running  machine. 

Mr,  Taylor  says  that  the  philosophy  of  scientific  management  is 
embraced  under  these  four  principles  : 

1.  The  development  of  a  science  in  place  of  "rule  of  thumb"  for  each 
element  of  the  work. 

2.  The  scientific  selection  and  training  of  the  workman. 

3.  The  bringing  of  the  science  and  the  scientifically  trained  workman 
together  through  the  co-operation  of  the  management  with  the  man. 

4.  An  almost  equal  division  of  the  work  and  the  responsibility  between 
the  management  and  the  workmen,  the  management  taking  over  all  work  for 
which  they  are  better  fitted  than  the  workmen,  while  in  the  past  almost  all 
of  the  work,  and  the  greater  part  of  the  responsibility,  were  thrown  upon 
the  workman. 

Quite  informally,  scientific  management  may  be  thus  defined : 

1.  It  is  a  definite  working  policy  applicable  wherever  human 
eflfort  is  put  forth*. 

2.  It  is  the  introduction  of  the  laboratory  method  in  everyday 
affairs. 

3.  It  is  the  acceptance  of  the  dictates  of  science  instead  of  those 
of  personal  opinion  and  tradition. 

4.  It  is  the  establishment  of  the  fact  that  not  to  know  is  no 
crime — that  the  crime  is  not  being  willing  to  find  out. 

5.  It  is  a  type  of  co-operation  more  intensive  than  the  world 
has  yet  seen. 

6.  It  is  filling  in — not  bridging — ^the  chasm  between  capital  and 
labor. 

7.  It  is  making  our  industrial  life  square  up  with  the  best  we 
know  in  our  personal  and  social  relations. 


628  CURRENT  ECONOMIC  PROBLEMS 

8.  It  involves  a  very  radical  change  in  the  attitude  both  of  the 
men  and  of  the  management  to  the  work  on  which  they  are  mutually 
engaged. 

Practically  ever)rthing  that  is  done  in  developing  scientific  man- 
agement in  an  establishment  has  for  its  object  the  setting  of  tasks. 
A  task  is  simply  a  fair  day's  work  and — let  us  not  forget — one  that 
can  be  repeated  day  in  and  day  out,  year  in  and  year  out,  if  neces- 
sary, without  detriment  to  the  physical,  mental  and  moral  well- 
being  of  the  person  performing  it.  Unless  you  are  able  to  set  tasks 
you  cannot  have  scientific  management. 

307.    The  Attitude  of  Organized  Labor  Toward  Scientific  Man- 
agement^^ 

We  are  opposed  to  any  system  of  shop  management  which 
requires  one  man  to  stand  over  another,  timing  him  with  a  stop 
watch  in  order  to  speed  him  up  beyond  his  normal  capacity.  In  ad- 
dition to  the  brutality  of  such  a  proceeding,  no  stop  watch  time 
study  can  possibly  be  accurate.  Every  physical  act  performed  by 
man  is  preceded  by  a  mental  process.  The  greater  the  amount  of 
skill  required  in  the  work,  the  greater  the  mental  process  preceding 
the  physical  expression  of  it,  and  there  is  no  method  known  to  effi- 
ciency engineers  or  others  by  which  a  time  study  can  be  made  by  a 
stop  watch  or  any  other  time-measuring  device  of  the  mental  process 
which  precedes  the  physical  act.  The  mental  process  being  a  neces- 
sary part  of  the  work  itself,  the  failure  to  make  a  time  study  of  that 
operation  of  the  work  makes  the  study  inaccurate,  and  secondly, 
worthless  as  a  basis  for  computing  compensation. 

To  establish  a  bonus  or  premium  system  upon  such  a  time  study 
is  wrong,  induces  the  workman  to  toil  beyond  his  normal  capacity, 
and  the  whole  system  has  a  tendency  to  wear  the. worker  to  a  ner- 
vous wreck,  destroy  his  physical  and  mental  health,  and  ultimately 
land  him  as  a  charge  upon  the  community  in  some  of  our  eleemosy- 
nary institutions. 

308.     Modern  Industry  and  Craft  SkilP' 

The  one  great  asset  of  the  wage  worker  has  been  his  craftsman- 
ship. We  think  of  craftsmanship  ordinarily  as  the  ability  to  manipu- 
late skilfully  the  tools  and  materials  of  a  craft  or  trade.    But  true 

** Adapted  from  resolutions  passed  by  the  National  Convention  of  the 
American  Federation  of  Labor,  November  22,  1912:  from  Report  of  Pro- 
ceedings, 346. 

**An  editorial  with  the  above  caption  in  the  International  Moulders' 
Journal,  LI,  197-198  (1915). 


TRADE  UNIONISM  629 

craftsmanship  is  much  more  than  this.  The  really  essential  element 
in  it  is  not  manual  skill  and  dexterity,  but  sometliing  stored  up  in 
the  mind  of  the  worker.  This  something  is  partly  the  intimate 
knowledge  of  the  character  and  uses  of  the  tools,  materials,  and 
processes  of  the  craft  which  tradition  and  experience  have  given 
the  worker.  But  beyond  this  and  above  this,  it  is  the  knowledge 
which  enables  him  to  understand  and  overcome  the  constantly  aris- 
ing difficulties  that  grow  out  of  variations,  not  only  in  tools  and 
materials,  but  in  the  conditions  under  which  the  work  must  be  done. 

In  the  past  for  the  most  part  the  skilful  manipulation  of  the 
tools  and  materials  of  a  craft  and  this  craftsmanship  of  the  brain 
have  been  bound  up  together  in  the  person  of  the  worker  and  have 
been  his  possession.  And  it  is  this  unique  possession  of  craft  know- 
ledge and  craft  skill  on  the  part  of  a  body  of  wage  workers — that  is, 
their  possession  of  these  things  and  the  employer's  ignorance  of 
them — that  has  enabled  the  workers  to  organize  and  force  better 
terms  from  the  employers.  On  this  unique  possession  has  depended 
more  than  on  any  other  one  factor  the  strength  of  trade  unionism 
and  the  ability  of  unions  to  improve  the  conditions  of  their  members. 

This  being  true,  it  is  evident  that  the  greatest  blow  that  could  be 
delivered  against  imionism  and  the  organized  workers  would  be  the 
separation  of  craft  knowledge  from  craft  skill.  For  if  the  skilled 
use  of  tools  could  be  secured  from  workmen  apart  from  the  craft 
knowledge  which  only  years  of  experience  can  build  up,  the  pro- 
duction of  "skilled  workmen"  from  unskilled  hands  would  be  a  mat- 
ter in  almost  any  craft  of  but  a  few  days  or  weeks ;  any  craft  would 
be  thrown  open  to  the  competition  of  an  almost  unlimited  labor 
supply;  the  craftsmen  in  it  would  be  practically  at  the  mercy  of  the 
employer. 

Of  late  this  separation  of  craft  knowledge  and  craft  skill  has 
actually  taken  place  in  an  ever-widening  area  and  with  an  ever- 
increasing  acceleration.  Its  process  is  shown  in  the  two  main  forms 
which  it  has  been  taking.  The  first  of  these  is  the  introduction  of 
machinery  and  the  standardization  of  tools,  machinery,  products, 
and  process,  which  make  production  possible  on  a  large  scale  and  the 
specialization  of  the  workmen.  Each  workman  under  such  circum- 
stances needs  and  can  exercise  only  a  little  craft  knowledge  and  a 
little  craft  skill.  But  he  is  still  a  craftsman,  though  only  a  narrow 
one  and  subject  to  much  competition  from  below.  The  second  form, 
more  insidious  and  more  dangerous  than  the  first,  but  to  the  signifi- 
cance of  which  most  of  us  have  not  yet  become  aroused,  is  the 
gathering  up  of  all  this  scattered  craft  knowledge,  systematizing  it 
and  concentrating  it  in  the  hands  of  the  employer,  and  then  doling 


630  CURRENT  ECONOMIC  PROBLEMS 

it  out  again  in  the  form  of  niinute  instructions,  giving  to  each  worker 
only  the  knowledge  needed  for  the  mechanical  performance  of  a  par- 
ticular relatively  minute  task.  This  process,  it  is  evident,  separates 
skill  and  knowledge  even  in  their  narrow  relationship.  When  it  is 
completed  the  worker  is  no  longer  a  craftsman  in  any  sense,  but  is 
an  animated  tool  of  the  management.  He  has  no  need  of  special 
craft  knowledge  or  craft  skill,  or  any  power  to  acquire  them  if  he 
had,  and  any  man  who  walks  the  streets  is  a  competitor  for  his  job. 
There  is  no  body  of  skilled  workmen  today  safe  from  the  one 
or  the  other  of  these  forces  tending  to  deprive  them  of  their  unique 
craft  knowledge  and  skill.  Only  what  may  be  termed  frontier  trades 
are  dependent  now  on  the  all-round  craftsman.  These  trades  are 
likely  at  any  time  to  be  standardized  and  systematized  and  to  fall 
under  the  influence  of  this  double  process  of  specialization.  The 
problem  thus  raised  is  the  greatest  one  which  organized  labor  faces. 
For  if  we  do  not  wish  to  see  the  American  workmen  reduced  to  a 
great  semi-skilled  and  perhaps  little  organized  mass,  a  new  mode 
of  protection  must  be  found  for  the  working  conditions  and  stand- 
ards of  living  which  unionism  has  secured,  and  some  means  must  be 
discovered  for  giving  back  to  the  worker  what  he  is  fast  losing  in 
the  narrowing  of  the  skill  and  the  theft  of  his  craft  knowledge.  It 
is  another  problem  which  the  organized  workmen  must  solve  for 
themselves  and  society. 

G.    UNIONISM  AND  THE  ANTI-TRUST  LAWS 
309.     The  Monopoly  of  Labor^^ 

To  the  House  of  Representatives: 

I  return,  without  my  approval,  the  bill  (H.  R.  28775,)  being 
"An  act  making  appropriations  for  the  sundry  civil  expenses  of  the 
Government  for  the  fiscal  year  ending  June  30,  1914,  and  for  other 
purposes." 

My  reasons  for  failing  to  approve  this  important  appropriation 
bill  are  found  in  a  provision  which  has  been  added  to  that  appropri- 
ating $300,000  for  the  enforcement  of  the  anti-trust  laws  in  the  fol- 
lowing language: 

"Provided,  however.  That  no  part  of  this  money  shall  be  spent 
in  the  prosecution  of  any  organization  or  individual  for  entering 
into  any  combination  or  agreement  having  in  view  the  increasing  of 
wages,  shortening  of  hours,  bettering  the  condition  of  labor,  or  for 

'^Adapted  from  the  President's  message  of  March  3,  1913,  vetoing  the 
Civil  Appropriations  Bill. 


TRADE  UNIONISM  631 

any  act  done  in  furtherance  thereof  not  in  itself  unlawful:  Pro- 
vided, further,  That  no  part  of  this  appropriation  shall  be  expended 
for  the  prosecution  of  producers  of  farm  products  and  associations 
of  farmers  who  co-operate  and  organize  in  an  effort  to  and  for  the 
purpose  to  obtain  and  maintain  a  fair  and  reasonable  price  for 
their  products." 

This  provision  is  class  legislation  of  the  most  vicious  sort.  If  it 
were  enacted  as  substantive  law  and  not  merely  as  a  qualification 
upon  the  use  of  monies  appropriated  for  the  enforcement  of  the  law, 
no  one,  I  take  it,  would  doubt  its  unconstitutionality.  A  similar  pro- 
vision in  the  laws  of  the  State  of  Illinois  was  declared  by  the  Su- 
preme Court  to  be  an  invasion  of  the  guarantee  of  the  equal  pro- 
tection of  the  laws  contained  in  the  fourteenth  amendment  of  the 
Constitution  of  the  United  States,''*  although  the  only  exception 
in  that  instance  from  the  illegality  of  organization  and  combina- 
tions, etc.,  declared  by  that  statute,  was  one  which  exempted  agri- 
culturists and  live-stock  raisers  in  respect  to  their  products  or  live 
stock  in  hand  from  the  operation  of  the  law  leaving  them  free  to 
combine  to  do  that  which,  if  done  by  others,  would  be  a  crime  against 
the  State. 

The  proviso  is  subtly  worded,  so  as,  in  a  measure,  to  conceal  its 
full  effect,  by  providing  that  no  part  of  the  money  appropriated 
shall  be  spent  in  the  prosecution  of  any  organization  or  individual 
"for  entering  into  any  combination  or  agreement  having  in  view  the 
increasing  of  wages,  shortening  of  hours,  or  bettering  the  condition 
of  labor,"  and  so  forth.  So  that  any  organization  formed  with  the 
beneficent  purpose  described  in  the  proviso  might  later  engage  in  a 
conspiracy  to  destroy  by  force,  violence,  or  unfair  means  any  em- 
ployer or  employee  who  failed  to  conform  to  its  requirements ;  and 
yet,  because  of  its  originally  avowed  lawful  purpose,  it  would  be 
exempt  from  prosecution,  so  far  as  prosecution  depended  upon  the 
money  appropriated  by  this  act,  no  matter  how  wicked,  how  cruel, 
how  deliberate  the  acts  of  which  it  was  guilty.  So,  too,  by  the  fol- 
lowing sentence  in  the  act  such  an  organization  would  be  protected 
from  prosecution  "for  any  act  done  in  furtherance"  of  the  "increas- 
ing of  wages,  shortening  of  hours,  or  bettering  the  condition  of 
labor"  not  in  itself  unlawful.  But  under  the  law  of  criminal  con- 
spiracy acts  lawful  in  themselves  may  become  the  weapons  whereby 
an  unlawful  purpose  is  carried  out  and  accomplished.^' 

'Connelly  v.  United  Sewer  Pipe  Co.,  184  U.  S.  540. 

** Shawnee  Compressed  Coal  Co.  v.  Anderson,  209  U.S.  423-434;  Aikens  v. 
Wisconsin,  195  U.S.  194-206;  Swift  v.  United  States,  196  U.S.  375-396;  United 
States  V.  Reading  Co.,  226  U.S.  324. 


632  CURRENT  ECONOMIC  PROBLEMS 

An  amendment  almost  in  the  language  of  this  proviso,  so  far  as 
it  refers  to  organizations  for  the  increasing  of  wages,  etc.,  was  m 
troduced  in  the  Sixty-first  Congress,  passed  the  House,  was  re- 
jected in  the  Senate,  and  after  a  full  discussion  in  the  House,  failed 
of  enactment.  Representative  Madison,  speaking  in  favor  of  the 
amendment  which  struck  out  the  proviso,  characterized  it  as  an  at- 
tempt to  "write  into  the  law,  so  far  as  this  particular  measure  is 
concerned,  a  legalization  of  the  secondary  boycott.  The  laws  of  the 
country,"  he  pointed  out,  "are  liberal  to  the  workingman.  He  can 
strike,  he  can  agree  to  strike,  and  he  can  apply  the  direct  boycott, 
but  when  it  comes  to  going  further  and  so  acting  as  to  impede  and 
obstruct  the  natural  and  lawful  course  of  trade  in  this  country,  then 
the  law  says  he  shall  stop.  And  all  in  the  world  that  this  anti-trust 
act  does  is  to  apply  to  him  that  simple  and  proper  rule,  that  he,  too, 
as  well  as  the  creators  of  trusts  and  monopolies,  shall  not  obstruct 
the  natural  and  ordinary  course  of  trade  in  the  United  States  of 
America."  "I  believe,"  he  added,  "in  the  high  aims,  motives,  and 
patriotism  of  the  American  workingman,  and  do  not  believe  that, 
rightly  understanding  this  amendment,  they  would  ask  us  to  write 
it  into  the  law  of  this  Republic."^*' 

It  is  because  I  am  unwilling  to  be  a  party  to  writing  such  a  pro- 
vision into  the  laws  of  this  Republic  that  I  am  unable  to  give  my 
assent  to  a  bill  which  contains  this  provision. 

WlI^IvIAM  H.  Ta?t 

310.    The  Charter  of  Industrial  Freedom'^ 

BY  SAMUEL  GOMPERS 

The  Sherman  anti-trust  law  was  repeatedly  used  against  organi- 
zations of  workers  on  the  ground  that  they  were  combinations  in 
illegal  restraint  of  trade.  The  injunctive  process  was  employed  to 
prevent  all  such  "combinations"  from  carrying  out  their  legitimate 
purposes.  There  was  no  relief  in  sight.  Rather  these  perversions 
of  the  real  purpose  of  the  law  were  becoming  habitual  tactics  in 
industrial  disputes  and  established  as  precedents  in  legalism. 

The  judicial  philosophy  upon  which  these  practices  were  based 
harked  back  to  the  olden  days  when  the  workers  were  villeins  or 
serfs.  Then  their  bodies  and  their  labor  power  were  the  property 
of  the  masters  or  feudal  overlords.    The  labor  of  a  human  being, 

*'' Congressional  Record,  61  st  Cong.,  2d  sess.,  8850. 

•'Adapted  from  an  article  with  the  above  caption  in  the  American  Federa- 
tionist,  XXI,  962-963,  971-972  (1914). 


TRADE  UNIONISM  633 

labor  power,  is  inseparable  from  the  living  bodies  of  the  workers. 
It  is  intimately  associated  with  the  physical  personality,  and  is  the 
outward  expression  of  the  mentality,  the  ideas,  the  individuality  of 
the  workers.  The  labor  of  a  human  being,  labor  power,  is  the  cre- 
ative expressions  of  inner  mentality.  It  cannot  be  a  commodity 
or  an  article  of  commerce  unless  human  beings  are  nothing  but  ma- 
terial things  or  legally  held  as  property. 

After  centuries  of  struggle  the  toilers  established  their  physical 
freedom,  but  industrial  freedom  was  denied  them  under  judicial  in- 
terpretation of  their  rights.  Judicial  theory  looks  backward  for  its 
sanctions ;  it  is  guided  by  precedents.  Judicial  opinions  square  them- 
selves by  the  past,  not  by  the  present.  There  resulted  a  strange 
legal  anomaly;  workers  were  free,  but  part  of  their  personality, 
their  labor  power,  was  the  property  of  their  employers  who  had 
property  rights  in  the  labor  power  of  employees.  For  it  is  impossible 
to  separate  the  power- to  labor,  the  power  to  produce,  from  the  bodies 
of  the  workers. 

Denial  of  industrial  freedom  robs  physical  freedom  of  its  reality 
and  value.  All  Americans  have  had  the  right  to  "life,  liberty,  and 
the  pursuit  of  happiness"  since  the  revolution  based  on  these  prin- 
ciples found  in  the  Declaration  of  Independence,  and  the  establish- 
ment of  our  Republic.  But  life  is  something  bigger  than  a  declara- 
tion of  political  principle.  The  workers  of  America  spend  most  of 
their  lives  in  mines,  workshops,  factories,  stores,  etc.,  and  have  felt 
all  the  bitterness  of  industrial  unfreedom.  They  have  been  denied 
real  choice  in  matters  relating  to  their  employment ;  they  have  been 
denied  the  right  to  promote  their  own  welfare;  they  have  been  de- 
nied the  right  to  life  in  its  real  significance. 

Under  modem  industrial  conditions  workers  as  individuals  are 
powerless  to  protect  themselves  against  employers'  aggressions,  or 
to  increase  wages,  shorten  hours  of  labor,  and  improve  their  gen- 
eral conditions  of  work  and  life.  Only  through  organization  can 
the  workers  present  their  views  of  rights,  defend  or  advance  their 
interests,  seek  redress  of  grievances,  and  establish  their  best  con- 
cepts and  ideals  of  justice.  The  development  of  large-scale  indus- 
tries and  trusts  makes  labor  organization  doubly  imperative.  There 
was  no  longer  the  slightest  probability  of  individual  personal  con- 
tact between  employers  and  employees.  Absentee  employers  con- 
ducted all  dealings  with  employees  through  superintendents  or  fore- 
men who  were  held  responsible  only  for  efficiency  and  profits.  Con- 
centration of  industry  and  trust  organization  dehumanized  the 
relations  between  employers  and  employees  and  thus  helped  to  re- 
tain the  theory  that  labor  power — the  labor  of  a  human  being — is 


634  CURRENT  ECONOMIC  PROBLEMS 

a  commodity.  Trusts  waged  war  upon  labor  organizations  with 
well-nigh  incredible  savagery  and  with  every  conceivable  method 
and  device.  Against  these  attacks  the  workers  had  to  protect  them- 
selves in  the  industrial  and  the  legal  fields.  It  was  necessary  to 
secure  some  change  in  the  Sherman  anti-trust  law — a  law  that  had 
proved  powerless  to  stay  the  increasing  number  of  trusts  but  had 
deprived  workers  of  their  rights  and  their  liberty. 

The  labor  sections  of  the  Clayton  Anti-Trust  Act  are  a  great  vic- 
tory for  organized  labor.  In  no  other  country  in  the  world  is  there 
an  enunciation  of  fundamental  principles  comparable  to  the  in- 
cisive, virile  statement  in  section  6. 

Those  words,  the  labor  of  a  human  being  is  not  a  commodity  or 
article  of  commerce,  are  sledge-hammer  blows  to  the  wrongs  and  in- 
justice so  long  inflicted  upon  the  workers.  The  declaratory  legis- 
lation, "The  labor  of  a  human  being  is  not  a  commodity  or  article 
of  commerce"  is  the  Industrial  Magna  Charta  upon  which  the  work- 
ing people  will  rear  their  structure  of  industrial  freedom.  Indus- 
trial freedom  is  necessary  for  human  welfare  and  progress.  The 
victory  won  by  the  united  American  labor  movement  is  a  victory  for 
all  humanity. 

311.     Legal  Exemption  of  Labor  Combinations^'' 

BY  AI^LYN  A.  YOUNG 

The  sixth  section  of  the  Clayton  act,  exempting  labor  combina- 
tions from  the  condemnation  of  the  anti-trust  laws,  is  as  follows : 

The  labor  of  a  human  being  is  not  a  commodity  or  article  of  commerce. 
Nothing  contained  in  the  anti-trust  laws  shall  be  construed  to  forbid  the 
existence  and  operation  of  labor  organizations,  instituted  for  the  purposes  of 
mutual  help,  and  not  having  capital  stock  or  conducted  for  profit,  or  to 
forbid  or  restrain  individual  members  of  such  organizations  from  lawfully 
carrying  out  the  legitimate  objects  thereof;  nor  shall  such  organizations,  or 
the  members  thereof,  be  held  or  construed  to  be  illegal  combinations  or  con- 
spiracies in  restraint  of  trade,  under  the  anti-trust  laws. 

The  declaration,  "The  labor  of  a  human  being  is  not  a  commodity 
or  article  of  commerce,"  is  little  more  than  an  empty  blague,  and 
the  permission  given  to  individual  members  of  labor  organizations 
to  "lawfully  carry  out  the  legitimate  objects  thereof"  is  at  once  harm- 
less and  unavailing.  If  there  is  any  effectiveness  in  the  section  it  is 
in  the  clause,  "nor  shall  such  organizations,  or  the  members  thereof, 

**Adapted  from  "The  Sherman  Act  and  the  New  Anti-Trust  Legislation," 
in  the  Journal  of  Political  Economy,  XXIII,  417-421  (1915). 


TRADE  UNIONISM  635 

be  held  or  construed  to  be  illegal  combinations  or  conspiracies  in  re- 
straint of  trade,  under  the  anti-trust  laws." 

Now  no  action  has  ever  been  brought  for  the  dissolution  of  a 
labor  union  under  the  Sherman  act.  But  Mr.  Gompers,  testifying 
before  the  House  Committee  on  the  Judiciary,  said  that  labor  com- 
binations exist  only  by  tolerance  of  the  Attorney-General.  If  Mr. 
Gompers'  interpretation  of  the  Sherman  act  is  correct,  if  that  statute 
condemns  unions  merely  because  they  are  combinations  for  collective 
bargaining,  then  it  must  be  admitted  that  their  specific  exemption  in 
this  section  is  a  matter  of  some  importance.  But  there  are  reasons 
for  thinking  Mr.  Gompers  mistaken. 

In  the  first  place,  there  is  enough  diflPerence  between  the  sort  of 
"monopoly"  which  a  labor  union  seeks  to  establish  and  such  monopo- 
listic industrial  combinations  as  are  clearly  condemned  by  the  Sher- 
man act  to  make  it  uncertain  whether  the  courts  would  put  them  in 
the  same  category.  One  is  in  principle  an  inclusive,  the  other  an 
exclusive,  monopoly.  It  is  true  that  railroad  mergers,  such  as  were 
condemned  in  the  Northern  Securities  and  Union  Pacific  cases,  are 
in  some  respects  "inclusive"  combinations.  But  the  St.  Louis  Ter- 
minal Railroad  case  is  a  more  instructive  precedent.  The  railroad 
in  question  has  a  virtual  monopoly  of  terminal  facilities  in  St.  Louis. 
A  suit  for  dissolution  was  brought  against  it  under  the  Sherman 
act.  The  Supreme  Court  did  not  grant  a  dissolution  order,  but 
merely  directed  the  company  so  to  reconstruct  its  organization  as 
to  provide  that  new  companies  might  participate  in  its  ownership 
and  be  given  the  advantage  of  its  services  on  equal  terms  with  the 
railroads  then  in  control  of  it.  The  parallel  is  not  perfect,  for  the 
Terminal  Railroad  of  St.  Louis  is  a  natural  monopoly.  But  the  case 
suggests  that  if  similar  suits  had  been  brought  against  labor  com- 
binations the  outcome  might  have  been  that  the  court  would  merely 
have  insisted  that  admission  to  union  membership  must  be  granted 
to  all  applicants  on  fair  terms. 

In  the  second  place,  it  is  doubtful  even  whether  the  courts  would 
have  deemed  themselves  authorized  by  the  Sherman  act  to  interfere 
in  any  degree  either  with  the  conditions  of  admission  to  union  mem- 
bership or  with  the  ordinary  trade  agreement  which  unions  attempt 
to  enforce.  For  agreements  among  working-men  to  fix  wages  or 
hours  or  conditions  of  employment  have  only  an  indirect  and  inci- 
dental effect  upon  interstate  trade  or  commerce,  while  the  courts 
have  consistently  held  that  the  Sherman  act  covers  only  agreements 
which  have  a  direct  and  primary  effect  upon  such  trade  or  commerce. 

In  the  third  place  the  Sherman  act  has  been  brought  to  bear  upon 
working-men,  not  because  labor  unions   in   themselves  are  labor 


636  CURRENT  ECONOMIC  PROBLEMS 

monoplies,  and  as  such  are  in  restraint  of  competition,  but  merely 
because  strikes  and  boycotts  have  the  effect  of  interfering  in  some 
degree  with  the  free  flow  of  goods  from  one  state  to  another.  This 
is,  of  course,  what  the  labor  interests  wanted  changed.  It  is  not 
clear,  however,  that  this  section  alters  the  law  in  this  respect.  I 
cannot  imagine  that  the  courts  will  hold  that  the  provision  that 
neither  labor  organizations  nor  their  members  shall  be  "held  or  con- 
strued to  be  combinations  or  conspiracies  in  restraint  of  trade"  cov- 
ers cases  of  this  kind.  If  it  does,  a  doubt  as  to  the  constitutionality 
of  the  section  at  once  arises.  It  is  true  that  the  Supreme  Court  has 
recently  held  that  a  Missouri  anti-trust  statute  is  not  in  violation  of 
the  federal  Constitution,  despite  the  fact  that  the  statute  specifically 
exempts  labor  combinations.  But  with  respect  to  the  matter  in 
hand  the  question  would  be  whether  an  exemption  of  such  inter- 
ference with  the  "free  flow  of  commerce"  as  comes  from  the  ac- 
tivities of  labor  combinations  would  not  amount  to  a  denial  of  "due 
process  of  law"  to  the  members  of  such  other  combinations  as  are 
condemned  for  similarly  interfering  with  commerce.  It  is  not  a 
question  of  the  legality  of  the  restraint  of  competition  among  work- 
ing-men. The  question  is  whether  labor  combinations  may  restrain 
interstate  commerce  in  goods  while  such  restraint  is  not  permitted 
to  other  combinations. 

There  is,  however,  another  provision  in  the  Clayton  act  which 
may  give  labor  combinations  virtual  immunity  from  the  operations 
of  the  Sherman  act.  This  section  (the  twentieth)  prohibits  the 
granting  of  injunctions  by  federal  courts  in  labor  disputes  "unless 
necessary  to  prevent  irreparable  injury  to  property  or  to  a  prop- 
erty right,"  and  specifies  that  such  injunction  shall  not  prohibit 
striking,  picketing,  or  boycotting.  This  in  itself  does  not  prohibit 
civil  suits  for  damages  or  criminal  persecutions  under  the  Sherman 
act.  Probably  it  does  not  prohibit  the  granting  of  injunctions  on  the 
petition  of  the  government,  for  the  general  provisions  of  the  section 
apply  only  to  cases  "between  employers  and  employees."  But,  so 
far  as  the  delimitation  of  the  scope  of  the  Sherman  act  is  concerned, 
such  considerations  as  these  become  unimportant  in  view  of  the  fact 
that  the  section  concludes  with  the  sweeping  statement,  "nor  shall 
any  of  the  acts  specified  in  this  paragraph  be  considered  or  held  to 
be  violations  of  any  law  of  the  United  States."  This  is  the  real 
exemption  section.  Its  constitutionality  is  a  matter  about  which 
there  is  some  doubt,  but  its  unconstitutionality  is  by  no  means  as- 
sured. If  the  courts  sustain  it,  labor  unions  will  have  been  effectively 
freed  from  the  restraints  of  the  Sherman  act. 


TRADE  UNIONISM  637 

H.     REVOLUTIONARY  UNIONISM 

312.     Sabotage 

a)     A  Definition  of  Sabotage^* 

BY  ARTURO  M.  GIOVANNITTI 

Sabotage  is : 

1.  Any  conscious  and  wilful  act  on  the  part  of  one  or  more 
workers  intended  to  slacken  and  reduce  the  output  of  production  in 
the  industrial  field,  or  to  restrict  trade  and  reduce  the  profits  in  the 
commercial  field,  in  order  to  secure  from  their  employers  better  con- 
ditions or  to  enforce  those  promised  or  maintain  those  already  pre- 
vailing, when  no  other  way  of  redress  is  open. 

2.  Any  skilful  operation  on  the  machinery  of  production  in- 
tended not  to  destroy  it  or  permanently  render  it  defective,  hut  only 
temporarily  to  disable  it  and  put  it  out  of  running  condition  in  order 
to  make  impossible  the  work  of  scabs  and  thus  to  secure  the  complete 
and  real  stoppage  of  work  during  a  strike. 

Whether  you  agree  or  not,  sabotage  is  this  and  nothing  but  this. 
It  is  not  destructive.  It  has  nothing  to  do  with  violence,  neither  to 
Ufe  nor  to  property.  It  is  nothing  more  or  less  than  the  chloroform- 
ing of  the  organism  of  production,  the  "knock-out  drops"  to  put  to 
sleep  and  out  of  harm's  way  the  ogres  of  steel  and  fire  that  watch 
and  multiply  the  treasures  of  King  Capital. 

b)     Go  Cannie^* 

BY  ARTURO  M.  GIOVANNITTI 

It  must  be  said  with  especial  emphasis  that  sabotage  is  not  and 
must  not  be  made  a  systematic  hampering  of  production,  that  it  is 
not  meant  as  a  perpetual  clogging  of  the  workings  of  industry,  but 
that  it  is  a  simple  expedient  of  war,  to  be  used  only  in  time  of  actual 
warfare  with  sobriety  and  moderation,  and  to  be  laid  by  when  the 
truce  intervenes. 

The  form  of  sabotage  which  was  formerly  known  as  Go  Cannie 
consists  purely  and  simply  in  "going  slow"  and  "taking  it  easy" 
when  the  bosses  do  the  same  in  regard  to  wages. 

••Adapted  from  the  Introduction  to  Pouget's  Sabotage,  I3-I4-  Copyright 
by  Charles  H.  Kerr  &  Co.  (1913).  Written  in  the  Essex  County  Jail,  Law- 
rence, Massachusetts. 

'*Adapted  from  the  Introduction  to  Pouget's  Sabotage,  22-25.  Copyright 
by  Charles  H.  Kerr  &  Co.  (iQU). 


638  CURRENT  ECONOMIC  PROBLEMS 

Let  us  suppose  that  one  hundred  men  have  an  agreement  with 
the  boss  that  they  should  work  eight  hours  a  day  and  get  $4.00  in 
return  for  a  certain  amount  of  work.  The  American  Federation  of 
Labor  is  very  particular — and  wisely  so — that  the  amount  of  work 
to  be  done  during  a  day  be  clearly  stipulated  and  agreed  upon  by 
the  two  contracting  parties — the  workers  and  their  employers,  this 
for  the  purpose  of  preventing  any  "speeding  up." 

Now,  to  exemplify,  let  us  suppose  that  these  one  hundred  work- 
ers are  bricklayers,  get  fifty  cents  an  hour,  work  eight  hours  a  day 
and,  as  agreed,  lay  fourteen  hundred  bricks  a  day.  Now,  one  good 
day  the  boss  comes  up  and  tells  them  he  can't  pay  them  $4.00  a 
day,  but  they  must  be  satisfied  with  $3.50.  It  is  a  slack  season,  there 
are  plenty  of  idle  men  and,  moreover,  the  job  is  in  the  country  where 
the  workers  cannot  very  well  quit  and  return  home.  A  strike,  for 
some  reason  or  another,  is  out  of  the  question.  Such  things  do  hap- 
pen. What  are  they  to  do?  Yield  to  the  boss  sheepishly  and 
supinely?  But  here  comes  the  Syndicalist  who  tells  them,  "Boys, 
the  boss  reduced  fifty  cents  on  your  pay — why  not  do  the  same  and 
reduce  two  hundred  bricks  on  your  day's  work?  And  if  the  boss 
notices  it  and  remonstrates,  well,  lay  the  usual  number  of  bricks,  but 
see  that  the  mortar  does  not  stick  so  well,  so  that  the  top  part  of 
the  wall  will  have  to  be  made  over  again  in  the  morning;  or  else 
after  laying  the  real  number  of  bricks  you  are  actually  paid  for,  build 
up  the  rest  out  of  the  plumb  line  or  use  broken  bricks  or  recur  to 
any  of  the  many  tricks  of  the  trade.  The  important  thing  is  not 
what  you  do,  but  simply  that  it  be  of  no  danger  or  detriment  to  the 
third  parties  and  that  the  boss  gets  exactly  his  money's  worth  and 
not  one  whit  more." 

The  same  may  be  said  of  the  other  trades.  Sweatshop  girls 
when  their  wages  are  reduced,  instead  of  sewing  one  hundred  pairs 
of  pants,  can  sew,  say,  seventy;  or,  if  they  must  return  the  same 
number,  sew  the  other  thirty  imperfectly — with  crooked  seams — or 
use  bad  thread  or  doctor  the  thread  with  cheap  chemicals  so  that 
the  seams  rip  a  few  hours  after  the  sewing,  or  be  not  so  careful 
about  the  oil  on  the  machines,  and  so  on. 

c)     Put  Salt  in  the  Sugar^'^ 

If  you  are  an  engineer  you  can,  with  two  cents  worth  of  powdered 
stone  or  a  pinch  of  sand,  stall  your  machine,  and  cause  a  loss  of 
time  or  make  expensive  repairs  necessary.     If  you  are  a  joiner  or 

"Quoted  from  the  Montpelier  Ijihor  Exchange  for  1900.  in  Tridon,  The 
New  Unionism,  43-46  (i9i3). 


TRADE  UNIONISM  639 

woodworker,  what  is  simpler  than  to  ruin  furniture  without  your 
boss  noticing  it,  and  thereby  drive  his  customers  away  ?  A  garment 
worker  can  easily  spoil  a  suit  or  a  bolt  of  cloth ;  if  you  are  working 
in  a  department  store  a  few  spots  on  a  fabric  cause  it  to  be  sold  for 
next  to  nothing;  a  grocery  clerk,  by  packing  up  goods  carelessly, 
brings  about  a  smashup;  in  the  woolen  or  the  haberdashery  trade 
a  few  drops  of  acid  on  the  goods  you  are  wrapping  will  make  a  cus- 
tomer furious;  ....  an  agricultural  laborer  may  sow  bad 
seed  in  wheat  fields,  etc. 

d)     The  Effectiveness  of  Sabotage^* 

BY  ARTURO  M.  GIOVANNITTI 

Now  that  the  bosses  have  succeeded  in  dealing  an  almost  mortal 
blow  to  the  boycott,  now  that  picket  duty  is  practically  outlawed, 
free  speech  throttled,  free  assemblage  prohibited,  and  injunctions 
against  labor  are  becoming  epidemic ;  sabotage,  this  dark,  invincible, 
terrible  Damocles'  sword  that  hangs  over  the  head  of  the  master 
class,  will  replace  all  the  confiscated  weapons  and  ammunition  of  the 
army  of  the  toilers.  And  it  will  win,  for  it  is  the  most  redoubtable 
of  all,  except  the  general  strike.  In  vain  may  the  bosses  get  an  in- 
junction against  the  strikers'  funds — sabotage  will  get  a  more  pow- 
erful one  against  their  machinery.  In  vain  may  they  invoke  old 
laws  and  make  new  ones  against  it — they  will  never  discover  it,  never 
track  it  to  its  lair,  never  run  it  to  the  ground,  for  no  laws  will  ever 
make  a  crime  of  the  "clumsiness  and  lack  of  skill"  of  a  "scab"  who 
bungles  his  work  or  "puts  on  the  bum"  a  machine  he  "does  not  know 
how  to  run." 

There  can  be  no  injunction  against  it.  No  policeman's  club.  No 
rifle  diet.  No  prison  bars.  It  cannot  be  starved  into  submission.  It 
cannot  be  discharged.  It  cannot  be  black-listed.  It  is  present  every- 
where and  everywhere  invisible,  like  the  airship  that  soars  high 
above  the  clouds  in  the  dead  of  night,  beyond  the  reach  of  the  can- 
non and  the  searchlight,  and  drops  the  dealiest  bombs  into  the 
enemy's  own  encampment. 

Sabotage  is  the  most  formidable  weapon  of  economic  warfare, 
which  will  eventually  open  to  the  workers  the  great  iron  gate  of 
capitalist  exploitation  and  lead  them  out  of  the  house  of  bondage 
into  the  free  land  of  the  future. 

•'Adapted  from  the  Introduction  to  Pouget's  Sabotage,  35-36.  Copyright 
by  Charles  H.  Kerr  &  Co.  (1913). 


640  CURRENT  ECONOMIC  PROBLEMS 

e)     The  Universality  of  Sabotage^'' 

Actions  which  might  be  classed  as  sabotage  are  used  by  the  dif- 
ferent exploiting  and  professional  classes. 

The  truck  farmer  packs  his  largest  fruits  and  vegetables  upon 
the  top  layer.  The  merchant  sells  inferior  articles  as  "something 
just  as  good."  The  doctor  gives  "bread  pills"  or  other  harmless 
concoctions  in  cases  where  the  symptoms  are  puzzling.  The  builder 
uses  poorer  materials  than  demanded  in  the  specifications.  The 
manufacturer  adulterates  foodstuffs  and  clothing.  All  these  are  for 
the  purpose  of  gaining  more  profits. 

Carloads  of  potatoes  were  destroyed  in  Illinois  recently;  cotton 
was  burned  in  the  southern  states;  coffee  was  destroyed  by  the 
Brazilian  planters ;  barge  loads  of  onions  were  dumped  overboard 
in  California ;  apples  were  left  to  rot  on  the  trees  of  whole  orchards 
in  Washington ;  and  hundreds  of  tons  of  foodstuffs  are  held  in  cold 
storage  until  rendered  unfit  for  consumption.    All  to  raise  prices. 

Some  forms  of  capitalist  sabotage  are  legalized,  others  are  not. 
But  whether  or  not  the  various  practices  are  sanctioned  by  law,  it 
is  evident  that  they  are  more  harmful  to  society  as  a  whole  than  is 
the  sabotage  of  the  workers. 

Capitalists  cause  imperfect  dams  to  be  constructed,  and  devas- 
tating floods  sweep  whole  sections  of  the  country.  They  have  faulty 
bridges  erected,  and  wrecks  cause  great  loss  of  life.  They  sell 
steamer  tickets,  promising  absolute  security,  and  sabotage  the  life- 
saving  equipment  to  the  point  where  hundreds  are  murdered,  as 
witness  the  "Titanic." 

The  "General  Slocum"  disaster  is  an  example  of  capitalist  sabo- 
tage on  the  life  preservers.  The  Iroquois  Theater  fire  is  an  example 
of  sabotage  by  exploiters  who  assured  the  public  that  the  fire-curtain 
was  made  of  asbestos.    The  cases  could  be  multiplied  indefinitely. 

Capitalist  sabotage  aims  to  benefit  a  small  group  of  non-produc- 
ers. Working-class  sabotage  seeks  to  help  the  wage-working  class 
at  the  expense  of  parasites. 

The  frank  position  of  the  class-conscious  worker  is  that  capital- 
ist sabotage  is  wrong  because  it  harms  the  workers;  working-class 
sabotage  is  right  because  it  aids  the  workers. 

Sabotage  is  a  direct  application  of  the  idea  that  property  has  no 
rights  that  its  creators  are  bound  to  respect.  Especially  is  this  true 
when  the  creators  of  the  wealth  of  the  world  are  in  hunger  and 
want  amid  the  abundance  they  have  produced,  while  the  idle  few 
have  all  the  good  things  of  life. 

'^Quoted  from  an  editorial  in  the  Industrial  Worker,  of  Spokane,  Wash- 
ington, in  Tridon,  The  New  Unionism,  53-55  (1913)- 


TRADE  UNIONISM  641 

The  open  advocacy  of  sabotage  and  its  widespread  use  is  a  true 
reflection  of  economic  conditions.  The  current  ethical  code,  with 
all  existing  laws  and  institutions,  is  based  upon  private  property  in 
production.  Why  expect  those  who  have  no  stake  in  society,  as  it  is 
now  constituted,  to  continue  to  contribute  to  its  support? 

313.     Industrial  Versus  Trade  Unionism" 

BY  MARY  K.  O'SULUVAN 

"We  were  drowning  men  ready  to  grasp  at  a  straw  when  the 
Industrial  Workers  of  the  World  appeared  to  save  us,"  said  more 
than  one  striker  in  Lawrence.  Up  to  the  present  the  Textile  Work- 
ers of  the  American  Federation  of  Labor  have  failed  to  organize  the 
unskilled  and  underpaid  workers.  They  have  ignored  their  capacity 
for  strength  and  failed  to  win  them  to  their  cause  or  to  better  their 
condition.  In  the  past  foreigners  have  been  the  element  through 
which  strikes  in  the  textile  industry  have  been  lost.  This  is  the 
first  time  in  the  history  of  our  labor  struggles  that  the  foreigners 
have  stood  to  a  man  to  better  their  condition  as  underpaid  workers. 

The  textile  workers  had  only  one  permanent  organization  at 
Lawrence  at  the  beginning  of  the  strike.  John  Golden,  the  official 
head  of  the  Textile  Workers  of  the  World,  instead  of  remaining  in 
Lawrence  and  fighting  for  the  interests  of  the  workers,  went  to 
Boston  and  was  reported  to  have  denounced  the  strike  as  being  led 
by  a  band  of  revolutionists. 

Members  of  the  Industrial  Workers  of  the  World  sent  for  Joe 
Ettor  and  in  four  days  he  organized  a  fighting  force  such  as  had 
never  existed  in  New  England  before. 

•  Nothing  was  so  conducive  to  organization  by  the  Industrial 
Workers  of  the  World  as  the  methods  used  by  the  three  branches  of 
the  American  Federation  of  Labor.  These  were  the  Lawrence 
Central  Labor  Union,  the  Boston  Women's  Trade  Union  League, 
and  the  Textile  Workers  of  America.  Catholics,  Jews,  Protestants, 
and  unbelievers — men  and  women  of  many  races  and  languages, 
— were  working  together  as  human  beings  with  a  common  cause. 
The  American  Federation  of  L'abor  alone  refused  to  cooperate.  As 
a  consequence,  the  strikers  came  to  look  upon  the  federation  as  a 
force  almost  as  dangerous  to  their  success  as  the  force  of  the  em- 
ployers themselves,  and  I  violate  no  confidence  in  saying  that  the 
operatives  represented  in  the  strike  committee  have  more  respect 
for  the  mill  owners  than  for  the  leaders  of  this  antagonistic  element 

"Adapted  from  an  article  in  The  Survey,  XXVIII,  72-74.  Copyright 
(1912). 


642  CURRENT  ECONOMIC  PROBLEMS 

within  their  own  ranks.  A  striker  who  went  to  the  federation  for 
reHef  was  looked  upon  as  recreant  to  his  cause  and  before  the  strike 
ended  the  American  Federation  of  Labor  org^anizations,  by  openly 
refusing  to  give  any  one  help  who  refused  to  return  to  work,  came 
to  be  looked  upon  as  a  trap  designed  in  the  interests  of  the  mills  to 
catch  any  workers  who  could  be  induced  to  desert  their  cause. 

314.    The  Standpoint  of  Syndicalism*' 

BY  IvOUIS  LEVINE 

The  fact  which  is  untiringly  emphasized  in  the  Syndicalist  analy- 
sis is  the  objective  antagonistic  position  of  those  engaged  in  modern 
industry.  The  owners  of  the  means  of  production  directly  or  indi- 
rectly running  their  business  for  their  private  ends  are  interested 
in  ever-increasing  profits  and  in  higher  returns.  The  workingmen, 
on  the  other  hand,  who  passively  carry  on  productive  operations  are 
anxious  to  obtain  the  highest  possible  price  for  their  labor-power 
which  is  their  only  source  of  livelihood.  Between  these  two  economic 
categories  friction  is  inevitable,  because  profits  ever  feed  on  wages, 
while  wages  incessantly  encroach  upon  profits. 

From  this  twofold  antagonism,  rooted  in  the  structure  of  modern 
economic  society,  struggle  must  ever  spring  anew,  and  this  is  the 
reason  why  all  schemes  and  plans  to  avoid  industrial  conflicts  fail 
so  lamentably.  Even  the  conservative  trades  unions,  based  on  the 
idea  that  the  interests  of  labor  and  capital  are  identical,  are  forced 
by  circumstances  to  act  contrary  to  their  own  profession  of  faith. 
Organizations  like  the  Civic  Federation  are  doomed  to  impotency. 
Boards  of  conciliation  and  arbitration  work  most  unsatisfactorily 
and  can  show  but  few  and  insignificant  results. 

All  efforts,  therefore,  to  establish  industrial  peace  under  existing 
conditions  result  at  best  in  the  most  miserable  kind  of  social  patch- 
work which  but  reveals  in  more  striking  nudity  the  irreconcilable 
contradictions  inherent  in  modern  economic  organization. 

There  is  but  one  logical  conclusion  from  the  point  of  view  of 
Syndicalism.  If  industrial  peace  is  made  impossible  by  modern 
economic  institutions,  the  latter  must  be  done  away  with  and  indus- 
trial peace  must  be  secured  by  a  fundamental  change  in  social  organ- 
ization. At  the  root  of  the  struggle  between  capital  and  labor  is  the 
private  ownership  of  the  means  of  production  which  results  in  the 
autocratic  or  oligarchic  direction  of  industry  and  in  inequality  of 

"Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XLIV,  114-118.  Copyright  (1912). 


TRADE  UNIONISM  643 

distribution.  The  way  to  secure  industrial  peace  is  to  remove  the 
fundamental  cause  of  industrial  war,  that  is,  to  make  the  means  of 
production  common  property,  to  put  the  management  of  industry  on 
a  truly  democratic  basis  and  to  equalize  distribution. 

The  Syndicahst  distrusts  the  state  ^nd  believes  that  political 
forms  and  institutions  have  outlived  their  usefulness  and  can  not 
be  adapted  to  new  social  relations.  The  Syndicalist  program  for 
the  future,  in  so  far  as  it  is  definite  and  clear,  contains  the  outlines 
of  an  industrial  society — the  basis  of  which  is  the  industrial  union, 
and  the  subdivisions  of  which  are  federations  of  unions,  and  federa- 
tions of  federations.  The  direction  of  industry,  in  this  ideal  system, 
is  decentralized  in  such  a  manner  that  each  industrial  part  of  society 
has  the  control  only  of  those  economic  functions  for  the  intelligent 
performance  of  which  it  is  especially  fitted  by  experience,  training, 
and  industrial  position. 

The  creative  force  of  the  industrial  struggle,  according  to  the 
Syndicalist,  manifests  itself  in  a  series  of  economic  and  moral 
phenomena  which,  taken  together,  must  have  far-reaching  results. 
In  the  struggle  for  higher  wages  and  better  conditions  of  work  the 
workingmen  are  led  to  see  the  important  part  they  play  in  the 
mechanism  of  production  and  to  resent  more  bitterly  the  opposition 
to  their  demands  on  the  part  of  employers.  With  the  intensification 
of  the  struggle,  the  feeling  of  resentment  develops  into  a  desire  for 
emancipation  from  the  conditions  which  make  oppression  possible; 
in  other  words,  it  grows  into  complete  class  consciousness  which 
consists  not  merely  in  the  recognition  of  the  struggle  of  classes  but 
also  in  the  determination  to  abolish  the  class-character  of  society. 
At  the  same  time  the  struggle  necessarily  leads  the  workingmen  to 
effect  a  higher  degree  of  solidarity  among  themselves,  to -develop 
their  moral  qualities,  and  to  fortify  and  consolidate  their  organiza- 
tions. 

It  is  evident  that  unless  the  Syndicalist  could  theoretically  con- 
nect the  struggles  of  the  present  with  his  ideal  of  the  future,  the 
latter  would  remain  a  beautiful  but  idle  dream  even  in  theory.  He 
is  bound,  therefore,  to  find  concrete  social  forces  working  for  the 
realization  of  his  ideal.  His  position  forces  him  to  prove  that  his 
ideal  is  the  expression  of  the  interests  of  a  definite  class,  that  it  is 
gradually  being  accepted  by  that  class  under  the  pressure  of  circum- 
stances, and  that  the  social  destinies  of  the  "revolutionary"  class 
are  more  and  more  identified  with  the  Syndicalist  ideal. 

He  cheerfully  accepts  the  conclusion  that  if  industrial  strife  is 
creating  social  harmony  his  task  is  to  intensify  the  struggle,  to 
widen  its  scope,  and  to  perfect  its  methods — in  order  that  the  creative 


644  CURRENT  ECONOMIC  PROBLEMS 

force  of  the  struggle  may  manifest  itself  as  thoroughly  and  on  as 
large  a  scale  as  possible.  He,  therefore,  logically  assumes  a  hostile 
attitude  towards  all  efforts  tending  to  mitigate  the  industrial 
struggle,  such  as  conciliation  and  arbitration,  and  definitely  enters 
the  economic  arena  for  tke  purpose  of  stirring  up  strife  and  of 
accentuating  the  struggle  as  much  as  is  in  his  power. 

315.     The  General  Strike" 

BY  ARTHUR  D.  LEWIS 

A  logical  extension  of  the  local  strike  leads  to  the  "general  strike," 
which,  in  its  extremest  form,  is  a  strike  of  all  the  workers  in  the 
world,  in  order  to  expropriate  all  the  owners  of  land  and  capital, 
and  accomplish  a  world  revolution.  This  is  to  be  brought  about  by 
the  spread  of  the  strike-spirit.  Obviously,  if  miners,  transport- 
workers  (that  is,  railway,  dock,  cartage,  and  tram  employees), 
textile- workers,  and  buildiqg-trade  workers  (to  select  a  few  trades), 
all  stopped  work,  it  might  be  near  enough  to  a  total  strike  for  all 
practical  purposes,  and  the  phrase  "general  strike"  is  not  applied 
with  any  much  stricter  meaning  than  that  of  a  very  large  strike. 

The  advantage  of  the  general  strike  has  been  declared  to  be  that 
"it  is  a  revolution  which  commences  in  legal  action,  with  legality," 
and  that  it  is  so  general  that  the  mobilization  of  an  army  of  suppres- 
sion would  be  difficult  if  not  impossible." 

"If  you  believe  in  the  necessity  for  maintaining  what  has  been 
called  the  catastrophic  conception — the  feeling,  that  is,  that  the  world 
will  only  be  born  again  by  a  complete  regeneration,  a  complete  rup- 
ture of  the  present  social  structure;  if  you  are  persuaded  that  the 
idea  of  the  social  revolution  is  the  necessary  symbol  which  must 
guard  in  the  heart  of  the  workers  the  sense  of  the  abyss  which 
separates  the  classes,  and  the  gap  which  exists  between  capitalist 
society  and  socialist  society;  then  you  must  recognize  that  nothing 
but  the  ide^  of  the  general  strike  is  capable  of  creating  and  develop- 
ing these  revolutionary  ideas." 

The  most  important  part  of  a  general  strike,  however,  would  be 
a  strike  of  soldiers  and  police.  If  this  took  place  while  many  great 
trades  were  arrested,  a  revolution  might  actually  be  near  at  hand. 
"What  barricades  and  refusal  of  taxes  have  been  to  the  bourgeois, 
the  general  strike  is  for  the  working-class.  It  is  the  ultima  ratio 
which  enters  the  scene  after  all  other  means  have  been  exhausted." 
It  is  usually  conceived  that  the  shooting  of  unarmed  strikers,  inno- 
cent of  any  crime,  is  likely  to  be,  at  some  time  or  other,  a  great  cause 

*''Adapted  from  Syndicalism  and  the  General  Strike,  217-226  (1912). 


TRADE  UNIONISM  645 

of  an  extension  of  a  small  strike  into  a  very  large  one:  the  mere 
presence  of  crowds  in  the  streets  has  on  many  occasions  been  a 
means  of  spreading  an  idea. 

A  complete  disorganization  of  the  means  of  communication  (the 
letter-post  and  telegraph)  would  probably  produce  a  greater  psycho- 
logical effect  (as  apart  from  directly  material  inconvenience)  than 
any  other  single  failure  in  the  routine  of  society. 

Society,  although  based  on  force,  is  largely  carried  on  by  means 
of  the  knowledge  that  force  can  be  exerted.  The  real  success  of  a 
general  strike  must  depend  on  its  generality:  if  a  vast  majority  of 
the  workers  of  a  country  ever  voluntarily  struck,  it  is  no  doubt  true 
that  the  entire  system  of  present-day  society  would  be  at  its  end. 
What,  however,  must  usually  happen  in  great  strikes  is  that  some 
men  are  thrown  out  of  work  "without  in  the  least  sympathizing  with 
the  strike  or  its  purposes.  They  will  be  the  shopkeepers,  the  busi- 
ness men,  and  great  sections  of  the  working-classes.  As  the  strike 
proceeds  and  the  price  of  food  reaches  famine  levels,  and  its  scarcity 
becomes  chronic,  the  ranks  of  the  malcontents  will  be  increased." 
The  point  is  obvious:  you  cannot  get  in  actual  fact  a  division  of 
society  with  all  the  workers  on  one  side. 

By  many,  the  idea  of  the  general  strike  will  be  quickly  dismissed 
as  a  wild  fancy,  a  horror  of  the  night,  to  which  it  is  not  necessary 
to  devote  serious  day  thoughts.  It  may,  however,  be  thought  that, 
although  the  general  strike  is  exceedingly  unlikely  to  take  place, 
in  days  of  growing  discontent,  the  possible  methods  by  which  a 
strike  might  really  paralyze  society  are  worth  considering. 

If  all  the  clerks  struck  work:  ours  is  a  civilization  built  on 
ledgers,  and  just  imagine — if  the  money  in  the  rich  man's  purse  was 
all  the  money  he  could  get  because  there  were  no  cashiers  at  the 
bank — if,  for  want  of  shipping  clerks,  no  one  knew  how  to  send 
goods  from  Antwerp  to  Pernambuco— if  the  builders  and  decorators 
spent  hours  in  puzzling  over  the  real  cost  of  jobs  in  order  to  send 
in  estimates  to  customers,  and  partners  in  financial  houses,  abso- 
lutely unaware  what  bills  were  due  for  payment  or  who  was  to  do 
what  in  the  multitudinous  subsidiary  wheels  of  the  details  of  their 
business,  simply  raved  uselessly  and  idly  around,  in  a  week  no  one 
would  know  whether  he  was  bankrupt  or  had  multiplied  his  fortune. 
Now  let  us  imagine  that  there  was  simultaneously  a  strike  of  trans- 
port workers — workers  on  railways,  trams,  ships,  omnibuses,  tubes, 
cabs,  and  public  conveyances  of  every  kind — while  the  clerks  had 
stopped  all  the  bookkeeping,  letter-writing,  insurance,  and  record- 
keeping business  of  the  country,  and  that  no  one  could  get  to  busi- 
ness except  by  walking — to  say  nothing  of  the  disorganization  of 


646  CURRENT  ECONOMIC  PROBLEMS 

home  life — the  rise  in  cost  of  food,  injury  to  health,  want  of  news 
owing  to  non-delivery  of  papers,  and  so  on — which  would  follow. 
If  to  these  two  strikes — the  clerks  and  the  transport  workers — a 
third,  that  of  the  coal-miners,  be  added,  it  will,  without  explanation, 
be  seen  how  fearful  would  be  the  position  of  society,  if  the  wage- 
earners  ever  became  even  approximately  able  all  to  strike  work 
together. 

Van  Kol  declares  it  to  be  "an  anarchist  Utopia;"  if  it  were 
possible  because  of  the  strong  organization  of  the  working-class  and 
their  unshakable  discipline,  better  means  would  also  be  at  their 
disposal.  The  poor  would  suffer  first  from  the  famine  caused  by  it. 
Kautsky  says  that  in  a  real  general  strike,  as  every  employer  would 
be  equally  hit,  the  main  weapon  of  the  striker,  the  fear  of  losing 
trade  to  competitors,  would  be  non-existent.  Like  many  others,  he 
approves  of  the  political  strike  intended  to  obtain  definite  conces- 
sions from  a  government,  but  not  of  a  general  economic  strike; 
the  political  strike  tends  to  destroy  a  government  by  a  direct  dis- 
organization of  the  country  governed:  it  is  a  contest  between  the 
cohesive  force  of  the  striker^  on  the  one  side  and  of  the  government 
on  the  other.  The  more  foolish  and  feeble  the  government,  the 
better  the  occasion  for  striking :  also  the  more  unforeseen  and  spon- 
taneous the  strike  the  greater  is  its  effect. 

But  the  Syndicalist's  ideal  is  precisely  the  general  economic 
strike. 

In  so  far  as  men  unite,  and  twenty-five  shillings  a  week  does  not 
look  down  on  eighteen,  the  chances  of  success  increase,  and  the 
general  strike  becomes  more  possible. 


XII 
SOCIAL  REFORM  AND  LEGAL  INSTITUTIONS 

From  time  out  of  mind  the  value  and  permanence  of  "fundamental" 
institutions  have  been  questioned.  The  escape  in  America  from  a  discus- 
sion of  problems  so  basic  has  been  largely  due  to  the  newness  of  our 
society.  The  open  frontier,  the  wide  distribution  of  industrial  opportunity, 
the  lack  of  formal  class  lines,  and  a  spirit  of  self-reliance  have  centered 
our  attention  upon  the  more  immediate  problems  of  applying  a  machine- 
technique  to  a  new  continent  and  of  collecting  the  golden  returns.  So 
closely  have  we  been  absorbed  in  this  that  we  have  regarded  our  insti- 
tutions as  a  part  of  the  immutable  universe  itself,  as  unalterable  as  the 
paths  of  the  stars. 

But  with  our  consciousness  of  maturity  we  are  beginning  to  realize 
that  in  the  immediate  future  we  must  newly  evaluate  our  institutions.  Three 
lines  of  development  are  responsible  for  this  change  in  attitude.  First,  we 
are  victims  of  intellectual  curiosity.  The  emphasis  placed  upon  the  general 
ideas  of  "evolution"  and  "organism"  in  our  intellectual  system  has  led 
investigators  to  explore  the  institutional  realm,  and  they  have  brought  back 
word  to  us  that  our  institutions  are  but  social  conventions,  and  that,  though 
they  change  slowly,  they  nevertheless  change.  Accordingly  they  are  losing 
the  attribute  of  absoluteness  with  which  we  have  been  accustomed  to  endow 
them.  Secondly,  there  is  a  growing  feeling  that  wealth  is  inequitably  dis- 
tributed. This  attitude  was  apparent  in  our  discussion  of  the  tariff,  the 
railroads,  the  trusts,  the  immigration  problem.  It  manifests  itself  clearly 
in  discussions  of  the  problems  of  labor  and  in  the  literature  of  socialism. 
Even  so  late  as  a  decade  ago  the  conflict  between  those  who  proposed  rad- 
ical changes  in  our  present  social  arrangements  and  the  upholders  of  the 
present  order  turned  upon  the  issue  of  the  source  of  value.  Today  questions 
of  market-process  are  no  longer  strategic  points  of  conflict  between  the  oppos- 
ing systems.  The  clash  now  is  over  institutions.  Accordingly  we  find 
questions  of  the  social  and  industrial  reform  engaging  the  attention,  not 
only  of  the  economist,  but  of  the  student  of  jurisprudence,  the  political 
scientist,  the  sociologist,  and  the  philosopher  as  well.  Thirdly,  the  peculiar 
nature  of  the  industrial  system  is  forcing  such  questions  to  the  front. 
Unlike  other  systems.  Modern  Industrialism  makes  use  of  a  vast  co-opera- 
tive productive  system.  In  this  there  are  employed  vast  aggregates  of 
accumulated  wealth.  A  consciousness  of  the  importance  of  this  large  volume 
of  "socialized  capital"  is  leading  to  the  formation  of  a  "gospel  of  wealth" 
not  unlike  the  mediaeval  "doctrine  of  stewardship."  The  disposition  to 
justify  or  condemn  ownership  or  use  of  productive  goods  by  "social  results" 
is  becoming  stronger.  Together  these  three  lines  of  development  are  increas- 
ing our  interest  in  problems  of  an  institutional  nature. 

Four  closely  related  problems  are  treated  below  as  typical  of  the  whole 
group.  The  first,  and  in  a  sense  the  one  which  comprehends  all  the  others, 
is  the  legal  system.  It  has  been  pronounced  alike  "a  subtle  device  of  capit- 
alism for  enslaving  the  laborer"  and  "the  supreme  palladium  of  our  lib- 
erties." Its  defenders  insist  that  "law  is  the  conservative  factor  in  social 
development"  and  declare  its  stability  a  necessary  condition  to  industrial 
and  social  advance.  Its  opponents  insist  that  it  is  still  bound  by  the  natural- 
rights  philosophy  of  the  eighteenth  century,  that  it  is  living  in  a  world  of 
fictions,  and  that  it  knows  nothing  of  the  reality  of  Modern  Industrialism. 
A  second  institution,  which  is  little  else  than  an  aspect  of  this  larger  first,  is 

647 


648  CURRENT  ECONOMIC  PROBLEMS 

the  system  of  jurisprudence  as  interpreted  by  the  courts.  It  is  easy  to  dis- 
cern a  fundamental  antithesis  between  the  theory  of  social  or  group  solidar- 
ity underlying  much  recent  legislation  and  the  individualistic  philosophy 
which  finds  expression  in  court  decisions.  It  is  easy  to  criticize  the  legislation 
as  overlooking  "natural  rights"  which  the  "courts  were  established  to  main- 
tain." It  is  equally  easy  to  condemn  the  courts  for  their  inability  to  appre- 
ciate the  theory  of  group  welfare  underlying  such  legislative  enactments. 
It  is  a  far  more  difficult  problem  to  suggest  a  practical  way  in  which  the 
antithesis  can  be  solved. 

A  third  institution  under  attack  is  our  system  of  private  property.  Most 
of  those  who  condemn  the  institutions  are  moved  bj'  the  inequalities  in  wealth 
which  they  charge  to  it.  Their  attitude  is  alike  shortsighted  and  individual- 
istic. The  institution  is  commonly  defended  upon  the  ground  that  property- 
owners  are  entitled  to  "what  they  produce,"  the  assumption  being  that  they 
"produce"  their  property.  It  need  not  be  said  that  this  defense  is  as  weak 
as  the  attack.  There  is,  however,  a  growing  disposition  to  judge  the  insti- 
tution by  its  less  immediate  "social  consequences."  Thus  it  is  attacked 
because  of  its  creation  and  perpetuation  of  artificial  inequalities  in  income, 
because  of  its  influence  in  stratifying  society  on  pecuniary  lines,  and  because 
of  the  dominant  social  position  which  it  gives  to  the  owners  of  large  aggre- 
gates of  material  wealth.  Its  defenders,  in  like  manner,  stress  the  incentive 
which  it  furnishes  to  individual  initiative,  the  function  which  it  performs 
in  social  organization  by  placing  productive  property  under  efficient  man- 
agement, and  its  contribution  to  material  development  in  furthering  the 
accumulation  of  capital.  Perchance  a  system  may  be  devised  for  combin- 
ing the  advantages  of  economic  democracy  with  those  of  an  advancing 
material  culture.  If  so,  by  all  means  let  us  adopt  it.  But  if  the  antithesis 
is  irreconcilable,  we  must  choose  between  two  things,  both  of  which  offer 
advantages  and  disadvantages.  Perchance  it  may  be  best  to  sacrifice  material 
advancement;  but  it  is  to  be  feared  that  the  present  generation  cannot  easily 
be  convinced  of  that.  Perhaps  we  may  be  fortunate  enough  to  retain  the 
institution,  but  can  succeed  in  modifying  it  in  such  a  way  as  to  establish 
a  necessary  connection  between  the  privileges  and  the  responsibilities  of 
ownership.  At  best  the  problem  contains  many  contradictory  values,  and 
turns  upon  the  larger  question  of  the  type  of  society  that  is  desirable. 

A  fourth  and  closely  related  institution  is  that  of  individual  liberty, 
embracing  as  it  does  the  legal  convention  of  freedom  of  contract.  A  nec- 
essary complement  of  private  property  in  a  flexible  industrial  system,  it  is 
the  very  epitome  of  the  older  institutional  complex.  Its  modification  is 
threatened  by  the  rise  of  the  newer  group  spirit,  through  such  legislative 
initiatives  as  regulation  of  monopoly,  prescription  of  hours  of  labor,  legal 
restraints  upon  hiring  and  discharge,  etc.  How  sweeping  its  modification  is 
to  be  only  the  future  "can  tell. 

Our  attention  to  our  institutional  framework  of  society  has  just  begun. 
The  range  of  inquiry  is  as  broad  as  human  life  itself ;  the  other  problems 
discussed  in  this. volume  only  begin  to  show  its  comprehensiveness.  By 
conscious  change  many  of  our  institutions  are  to  be  profoundly  modified. 
If  the  newer  life  finds  the  institutional  molds  too  rigid,  the  change  may 
be  rapid  and  revolutionary.  But  most  important  of  all  are  the  changes  in 
these  institutions  which  are  gradually  being  effected  by  a  process  of  growth 
which  we  but  dimly  see,  and  the  changes  which  these  institutions  in  turn  are 
inducing  in  the  complex  of  our  developing  scheme  of  life  and  values. 


SOCIAL-LEGAL  INSTITUTIONS    '  649 

A.     THE  LEGAL  SYSTEM 

316.     The  Economic  Basis  of  Law* 

BY  ACHILLE  LORIA 

Changes  in  the  prevailing  economic  conditions  necessarily  in- 
volve corresponding  alterations  in  law.  The  history  of  law  furnishes 
us  with  clear  and  definite  demonstration  of  the  fact.  During  the 
primitive  period  when  law  was  worked  out  upon  a  family  and  not 
upon  a  property  basis,  mother-right  prevailed  imiversally.  Under 
more  modem  conditions  we  are  struck  with  amazement  at  the  simi- 
larity in  legal  systems  prevailing  among  the  most  diverse  peoples. 
The  ancient  law  of  the  Romans  and  Germans  alike  shows  us  the 
same  classification  of  persons;  among  both  the  law  maintained 
the  inviolability  of  private  property,  determined  the  boundaries  of 
patrimonial  fields,  proclaimed  the  personal  nature  of  an  obligation, 
and  fixed  the  rigorous  bonds  that  shackled  the  liberty  of  the  debtor. 

That  so  striking  an  analogy  should  exist  in  the  legal  'system  of 
two  peoples  so  profoundly  different  and  so  widely  separated  is  highly 
significant :  on  the  one  hand,  because  it  reverses  the  theory  that  law 
is  an  emanation  of  national  consciousness;  and  upon  the  other,  be- 
cause it  shows  that  the  law  necessarily  depends  upon  existing  eco- 
nomic conditions.  The  Romans  and  the  primitive  Germans  were 
diflFerent  in  race  and  manners  and  lived  under  different  climatic  con- 
ditions. Between  the  two  peoples  there  was  nothing  in  common  be- 
yond the  identity  of  their  economic  systems;  or,  to  put  it  more 
definitely,  there  was  nothing  in  common  except  identical  territorial 
conditions,  which  irresistibly  impelled  them  to  adopt  an  identical 
economic  constitution.  The  analogy  in  legal  systems  must  neces- 
sarily have  resulted  from  the  one  element  common  to  them  both, 
their  economic  system. 

The  Roman  economy  and  the  German  economy  proceeded  to- 
gether for  a  certain  time.  But  after  the  collective  economy  gave 
way  to  the  system  of  capitalistic  property,  their  ways  lay  apart; 
for  Germany's  free  land,  being  of  a  low  grade  of  fertility,  could 
be  taken  from  the  laborer  without  serious  violence,  while  in  South- 
ern Europe,  with  its  fertile  land,  blood  and  iron  alone  could  pre- 
vent the  laborers  from  establishing  themselves  on  the  free  land. 
This  led  in  Southern  Europe  to  an  admirably  perfected  capitalistic 

^Adapted  from  The  Economic  Foundations  of  Society,  80-86.  Translated 
by  Lindley  M.  Keasbey  (1899). 


650  CURRENT  ECONOMIC  PROBLEMS 

system  upon  which  a  corresponding  legal  structure  was  raised.  The 
resulting  system  of  legal  relations  and  doctrines  remain  to  our  day 
a  superb  monument  to  Latin  genius. 

The  slave  economy  was  never  rigorously  established  in  Teu- 
tonic countries;  the  suppression  of  free  land  there  assumed  the 
milder  form  of  serfdom.  Thus  there  was  produced  a  legal  system 
differing  from  that  of  Rome  in  three  respects :  it  instituted  patri- 
archal relations  between  property  and  labor;  it  protected  the  serf 
from  arbitrary  acts  of  violence  by  the  proprietor;  and  it  placed  re- 
spect for  the  family  and  a  sentiment  of  solidarity  above  the  mere  sat- 
isfaction of  brutal  egoism.  With  the  disintegration  of  Roman  so- 
ciety, the  classic  law  fell  into  abeyance.  Southern  Europe  was 
forced  to  introduce  the  serf  system,  and  it  then  became  expedient 
to  substitute  the  Germanic  code  for  the  classic  law  of  Rome.  This 
substitution  was  not  a  victory  of  Teutonic  over  Roman  law;  it  was 
simply  the  natural  reproduction  of  a  legal -system  to  meet  the  reap- 
pearance «f  the  very  economic  conditions  that  had  originally  given 
it  life.  We  thus  have  additional  proof  of  the  law's  exclusive  de- 
pendence upon  the  economic  structure  of  society. 

In  a  somewhat  analogous  manner  the  later  institution  in  Ger- 
many of  economic  relations  similar  to  those  formerly  prevailing  in 
Rome  introduced  the  Roman  law  into  that  country.  Here  the  grow- 
ing wage  economy  engendered  a  new  set  of  relations  between  prop- 
erty and  labor,  and  these  had  to  give  rise  to  institutions  heretofore 
unknown.  The  new  system  offered  a  profound  analogy  to  that  of 
the  Roman  slave  economy.  Thus,  though  the  law  regulating  the 
wage  contract  had  to  be  an  original  creation  of  the  new  economic 
system,  the  law  regulating  the  relations  among  proprietors  could 
practically  be  reproduced  in  its  classic  form.  Now  it  is  exactly 
these  relations  that  constitute  the  essential  object  of  the  law.  The 
Roman  law,  accordingly,  emerged  from  the  tomb  where  it  had  so 
long  reposed  into  the  expansion  of  a  new  life.  The  movement  to- 
ward this  awakening  commenced  in  Italy  where  the  wage  economy 
first  began  to  develop.  Its  passing  from  Italy  into  Germany  was 
but  the  necessary  correlation  of  the  economic  revolution  that  spread 
these  same  conditions  throughout  Northern  Europe. 

Thus  legal  history  shows  us  that  instead  of  being  the  product  of 
abstract  reason,  or  the  result  of  national  consciousness,  or  a  racial 
characteristic,  the  law  is  simply  the  necessary  outcome  of  economic 
conditions. 


SOCIAL-LEGAL  INSTITUTIONS  651 

317.     Social  Rights  and  the  Legal  System^ 

BY  ROSCOE  POUND 

A  generation  ago  it  would  have  been  hard  to  find  anyone  to  ques- 
tion that  upon  the  whole  the  American  law  was  quite  what  it  should 
be.  But  first  the  economists  and  sociologists  and  students  of  govern- 
ment, and  then  the  bar  itself,  have  been  thinking  upon  this  matter 
freely  and  vigorously  until  criticism  has  become  stable.  The  need 
for  agitation  has  passed.  Now  for  a  season  we  need  careful  diag- 
nosis and  thoroughgoing  study  of  the  lines  along  which  change  is  to 
proceed. 

Legal  history  shows  that  from  time  to  time  legal  systems  have 
to  be  remade,  and  that  this  new  birth  of  a  body  of  law  takes  place 
through  the  infusion  into  the  legal  system  of  something  from  with- 
out. A  purely  professional  development  of  law,  which  is  necessary 
in  the  long  run,  has  certain  disadvantages,  and  the  undue  rigidity 
to  which  it  gives  rise  must  be  set  off  from  time  to  time  by  receiving 
into  the  legal  system  ideas  developed  outside  of  legal  thought.  Such 
a  process  has  taken  place  in  the  history  of  our  own  law.  In  the  six- 
teenth and  seventeenth  centuries  the  common  law,  through  purely 
professional  development  in  the  King's  Courts,  had  become  so  sys- 
tematic and  logical  and  rigid  that  it  took  no  account  of  the  moral 
aspects  of  causes  to  which  is  was  to  be  applied.  With  equal  impar- 
tiality its  rules  fell  upon  the  just  and  the  unjust.  The  rise  of  the 
Court  of  Chancery  and  the  development  of  equity  brought  about 
an  infusion  of  morals  into  the  legal  system — an  infusion  of  the 
ethical  notions  of  chancellors  who  were  clergj^men,  not  lawyers — 
and  made  over  the  whole  law.  Again,  in  the  eighteenth  century,  the 
law  had  become  so  fixed  and  systematized  by  professional  develop- 
ment as  to  be  quite  out  of  accord  with  a  commercial  age.  As  the 
sixteenth-century  judge  refused  to  hear  of  a  purely  moral  question, 
asking  simply  what  was  the  common  law,  so  the  eighteenth-century 
judge  at  first  refused  to  hear  of  mercantile  custom  and  commercial 
usage,  and  insisted  upon  the  strict  rules  of  the  traditional  law.  But 
before  the  century  was  out,  by  the  absorption  of  the  law  merchant, 
a  great  body  of  non-professional  ideas,  worked  out  by  the  experi- 
ence of  merchants,  had  been  infused  into  the  legal  system,  and  had 
created  or  made  over  whole  departments  of  the  law. 

Today  a  like  process  is  going  on.  The  sixteenth-century  judge 
who  rendered  judgment  upon  a  bond  already  paid,  because  no 
formal  release  had  been  executed,  and  refused  to  take  account  of  the 

^Adapted  from  "Social  Problems  and  the  Courts,"  in  the  American  Jour- 
nal of  Sociology,  XVIII,  331-341    (1912). 


652  CURRENT  ECONOMIC  PROBLEMS 

purely  moral  aspects  of  the  creditor's  conduct;  the  great  judge  in 
the  eighteenth  century  who  refused  to  allow  the  indorsee  of  a 
promissory  note  to  sue  upon  it,  because  by  the  common  law  things 
in  action  were  not  transferable,  and  would  not  listen  to  the  settled 
custom  of  merchants  to  transfer  such  notes,  nor  to  the  statement 
of  the  London  tradesmen  as  to  the  unhappy  effect  of  such  a  ruling 
upon  business,  have  their  entire  counterpart  in  the  judges  of  one  of 
the  great  courts  of  the  United  States  in  the  twentieth  century  to 
whom  the  economic  and  sociological  aspects  of  a  question  appear 
palpably  irrelevant. 

The  sixteenth-  and  seventeenth-century  law 'was  brought  to  take 
account  of  ethics.  The  eighteenth-century  law  came  to  receive  the 
custom  of  merchants  as  part  of  the  law  of  the  land.  May  we  not 
be  confident  that  in  the  same  way  the  law  of  the  twentieth  century 
will  absorb  the  new  ecojiomies  and  the  social  science  of  today  and 
be  made  over  thereby? 

It  is  an  infusion  of  social  ideas  into  the  traditional  element  of 
our  law  that  we  have  to  bring  about ;  and  such  an  infusion  is  going 
on.  The  right  course  is  not  to  tinker  with  our  courts  and  with  our 
judicial  organization  in  the  hope  of  bringing  about  particular  re- 
sults in  particular  kinds  of  cases,  at  a  sacrifice  of  all  that  we  have 
learned  or  ought  to  have  learned  from  legal  and  judicial  history. 
It  is  rather  to  provide  a  new  set  of  premises,  a  new  order  of  ideas 
in  such  form  that  the  courts  may  use  them  and  develop  them  into  a 
modern  system  by  judicial  experience  of  actual  cases.  A  body  of  law 
which  will  satisfy  the  social  workers  of  today  cannot  be  made  of 
the  ultra-individualist  materials  of  eighteenth-century  jurisprudence 
and  nineteenth-century  common  law  based  thereon,  no  matter  how 
judges  are  chosen  or  how  often  they  are  dismissed. 

A  master  of  legal  history  tells  us  that  taught  law  is-  tough  law. 
Certainly  it  is. true  that  our  legal  thinking  and  legal  teaching  are  to 
be  blamed  more  than  the  courts  for  the  want  of  sympathy  with  social 
legislation  which  has  been  so  much  in  evidence  in  the  immediate 
past.  One  might  almost  say  that  instead  of  recall  of  judges,  recall 
of  law  teachers  would  be  a  useful  institution.  At  any  rate,  what 
we  must  insist  upon  is  recall  of  much  of  the  juristic  and  judicial 
thinking  of  the  last  century. 

For  many  reasons  which  cannot  be  taken  up  here,  our  concep- 
tion of  the  end  of  the  legal  system  came  to  be  thoroughly  individual- 
istic. Legal  justice  meant  securing  of  individual  interests.  It  sought 
by  means  of  law  to  prevent  all  interference  with  individual  self- 


SOCIAL-LEGAL  INSTITUTIONS  653 

development  and  self-assertion,  so  far  as  this  might  be  done  con- 
sistently with  a  like  self-development  and  self-assertion  on  the  part 
of  others.  It  conceived  that  the  function  of  the  state  and  of  the  law 
was  to  make  it  possible  for  the  individual  to  act  freely.  Hence  it 
called  for  a  minimum  of  legal  restraint,  restricting  the  sphere  of 
law  to  such  checks  as  are  necessary  to  secure  "a  harmonious  coex- 
istence of  the  individual  and  of  the  whole."  This  purely  individual- 
ist theory  of  justice  culminated  in  the  eighteenth  century  in  the 
Declaration  of  the  Rights  of  Man  and  the  Bill  of  Rights  so  char- 
acteristic of  that  period.  Spencer's  formula  of  justice,  "the  liberty 
of  each  limited  only  by  the  like  liberties  of  all,"  represents  the  ideal 
which  American  law  has  had  before  it  during  its  whole  existence. 
In  politics,  in  ethics,  and  in  economics  this  conception  has  decayed, 
and  has  given  way  to  a  newer  idea  of  justice.  But  it  continues  to 
rule  in  jurisprudence. 

In  contrast  with  such  juristic  thinking  of  the  immediate  past, 
which  started  from  the  premise  that  the  object  of  the  law  was  to 
secure  individual  interests  and  knew  of  social  interests  only  as  in- 
dividual interests  of -the  state  or  sovereign,  the  juristic  thinking  of 
the  present  must  start  from  the  proposition  that  individual  inter- 
ests are  to  be  secured  by  law  because  and  to  the  extent  that  they 
are  social  interests.  There  is  a  social  interest  in  securing  individual 
interests  so  far  as  securing  them  conduces  to  general  security,  se- 
curity of  institutions  and  the  general  rural  and  social  life  of  indi- 
viduals. Hence  while  individual  interests  are  one  thing  and  social 
interests  another,  the  law,  which  is  a  social  institution,  really 
secures  individual  interests  because  of  a  social  interest  in  so  doing. 

Study  of  fundamental  problems  of  jurisprudence,  not  petty 
changes  of  the  judicial  establishment,  is  the  road  to  socialization  of 
the  law.  First  of  all,  there  must  be  a  definition  of  social  justice  to 
replace  the  individualistic  or  so-called  legal  justice  which  we  have; 
there  must  be  a  definition  of  social  interests  and  a  study  of  how 
far  these  are  subserved  by  securing  the  several  individual  interests 
which  the  law  has  worked  out  so  thoroughly  in  the  past ;  there  must 
be  a  study  of  the  means  of  securing  these  social  interests  otherwise 
than  by  the  methods  which  the  past  had  worked  out  for  purely  in- 
dividual interests.  Second,  there  must  be  a  study  of  the  actual 
social  effects  of  legal  institutions  and  legal  doctrines.  Courts  cannot 
do  this,  nor  can  law  teachers  or  law  writers,  except  within  narrow 
limits.  The  futility  of  a  self-sufficing,  self-centered  science  of  law 
has  become  apparent  to  jurists. 


654  CURRENT  ECONOMIC  PROBLEMS 

318.     Law  and  Social  Statics^ 

BY  OUVfiR  W.  HOI^MES 

This  case  is  decided  upon  an  economic  theory  which  a  large  part 
of  the  country  does  not  entertain.  If  it  were  a  question  whether  I 
agreed  with  the  theory  I  should  desire  to  study  further  and  long 
before  making  up  my  mind.  But  I  do  not  conceive  that  to  be  my 
duty,  because  I  strongly  believe  that  my  agreement  or  disagreement 
has  nothing  to  do  with  the  right  of  the  majority  to  embody  their 
opinion  in  law.  It  is  settled  that  state  constitutions  and  laws  may 
regulate  life  in  many  ways  that  we  as  legislators  might  think  inju- 
dicious, or  if  you  like,  as  tyrannical  as  this,  and  which  equally  inter- 
fere with  the  liberty  of  contract.  This  liberty  of  the  citizen  to  do 
as  he  likes  so  long  as  he  does  not  interfere  with  the  like  liberty  of 
others  to  do  the  same,  which  has  been  a  shibboleth  for  many  well- 
known  writers,  is  interfered  with  by  school  laws,  by  the  Post  Office, 
by  every  state  and  municipal  institution  which  takes  his  money  for 
purposes  thought  desirable,  whether  he  likes  it  or  not.  The  14th 
Amendment  does  not  enact  Herbert  Spencer's  Social  Statics.  A  con- 
stitution is  not  intended  to  embody  a  particular  economic  theory, 
whether  of  paternalism  and  the  organic  relations  of  a  citizen  to  the 
state,  or  of  laissez-faire.  It  is  made  for  people  of  fundamentally 
differing  views. 

General  propositions  do  not  solve  concrete  problems.  The  decis- 
ion will  depend  on  a  judgment  or  intuition  more  subtle  than  any  ar- 
ticulate major  premise.  Every  opinion  tends  to  become  law.  I 
think  that  the  word  liberty  in  the  14th  amendment  is  perverted  when 
it  is  held  to  prevent  the  natural  outcome  of  a  dominant  opinion,  un- 
less it  can  be  said  that  a  rational  and  fair  minded  man  would  neces- 
sarily admit  that  the  proposed  statute  would  infringe  fundamental 
principles  as  they  have  been  understood  by  the  traditions  and  the 
laws  of  our  people. 

319.     The  Social  Function  of  Law 

BY   HOMER  HOYT 

The  critics  of  the  current  legal  system  seem  to  be  agreed  as  to 
the  baneful  effect  of  its  static  character.  Law  is  said  to  be  a  sur- 
vival of  eighteenth-century  philosophy  which  cannot  be  justly  ap- 

'Lochner  v.  New  York,  198  U.  S.  74-  This  the  well-known  "bake-shop 
case."  A  statute  passed  by  the  New  York  legislature,  regulating  the  hours 
of  labor  in  bake  shops,  was  declared  unconstitutional.  The  selection  jjiven  is 
an  excerpt  from  a  dissenting  opinion  (1904). 


SOCIAL-LEGAL  INSTITUTIONS  655 

plied  to  twentieth-century  society.  The  favorable  hearing  which 
this  plea  is  receiving  indicates  that  it  is  in  keeping  with  the  growing 
tendency  of  an  age  of  industrial  change  to  emphasize  the  dynamic 
and  evolutionary  elements  of  its  institutions.  The  demand  for  rela- 
tive standards  of  jurisprudence  becomes  more  insistent,  as  people 
become  more  convinced  of  the  unique  and  marvelous  character  of 
their  own  epoch.  We  are  told  that  legal  codes  should  be  developed 
out  of  the  experience  of  the  society  to  which  they  are  to  be  applied, 
and  that  any  law  whose  basis  is  broader  than  the  time  and  place  in 
which  it  is  now  established,  to  the  extent  that  it  fails  of  this  coinci- 
dence, is  clearly  unjust.  In  particular,  our  present  society,  which  is 
so  different  from  other  societies  both  in  degree  of  complexity  and 
in  kind  of  organization,  necessarily  requires  rules  of  conduct  which 
are  adapted  to  its  institutions.  The  scope  of  laws  is  not  only  to  be 
narrowed  to  a  brief  time  unit,  but  their  application  to  different 
classes  of  individuals  at  the  same  moment  is  to  be  carefully  re- 
stricted. As  commonly  expressed,  justice  consists  in  giving  to  every 
person  a  square  deal,  and  this  is  generally  interpreted  to  mean  judg- 
ment of  the  individual  by  the  rules  of  the  game  which  were  set  for 
his  particular  social  environment.  Perfect  justice  could  be  secured 
in  every  case,  according  to  these  critics,  by  discarding  past  stand- 
ards and  by  deciding  each  case  upon  its  merits.  This  involves  noth- 
ing less  than  the  abandonment  of  objective  rules  of  judgment,  arid 
the  substitution  in  their  place  of  the  subjective  test  of  the  psycho- 
logical laboratory.  The  indictment  is  thus  chiefly  directed  against 
the  social  value  of  static  standards  of  law. 

The  apologists  for  the  existing  legal  institutions  assert  that  stable 
standards  of  law  are  necessary  to  secure  this  very  special  consid- 
eration of  the  merits  of  each  individual  case,  which  constitutes  the 
very  essence  of  individual  justice.  They  would  remind  their  critics 
that  legal  principles  originate  in  social  intercourse,  and  are  concerned 
with  the  conduct  of  individuals  in  relationships  where  some  com- 
munity of  understanding  is  indispensable.  The  social  conventions 
and  institutions  are  the  relatively  static  elements  in  society,  and  it  is 
necessary  for  their  function  as  media  of  social  communication  that 
they  should  be  so.  Their  purpose  is  to  furnish  a  convenient  agency 
of  mutual  expression,  which  can  be  acquired  with  a  minimum  of  ef- 
fort on  the  part  of  the  individual,  and  to  establish  an  agreement 
among  diverse  and  heterogeneous  interests  in  regard  to  matters 
where  unanimity  is  of  great  advantage  to  the  individual.  Law  ac- 
quires its  static  character  by  becoming  so  familiar  that  it  no  longer 
requires  conscious  attention.  Men  form  habits  in  regard  to  their 
legal  institutions,  for  the  same  purpose  that  they  form  habits  in 


656  CURRENT  ECONOMIC  PROBLEMS 

regard  to  language — to  economize  the  time  and  effort  of  carrying 
on  relations  with  their  fellows.  Legal  standards  thus  enter  indis- 
solubly  into  the  thoughts,  acts,  and  characters  of  men  as  a  part  of 
their  fundamental  assumptions,  which  they  accept  without  question. 
Individual  acts  inevitably  carry  forward  the  theory  of  law  which 
existed  prior  to  their  performance,  and  thus  tend  to  perpetuate  the 
same  principles.  The  prohibition  of  retroactive  laws  is  universally 
considered  necessary  to  prevent  confiscation  of  property,  and  for- 
feiture of  vested  rights,  but  it  accomplishes  its  purpose  by  guaran- 
teeing a  certain  degree  of  stability  in  our  legal  system.  Justice  to 
the  individual,  according  to  the  conception  entertained  in  the  pre- 
ceding paragraph,  can  be  assured  only  by  recognizing  the  social 
value  of  static  laws  in  setting  up  guideposts  to  direct  individuals 
to  the  legal  road.  The  complexity  of  modem  civilization  confuses 
and  bewilders  one  who  has  no  definite  knowledge  of  its  laws.  As  an 
immigrant  in  a  strange  land  feels  helpless  and  insecure  because  of 
ignorance  of  the  unfamiliar  social  organization,  so  the  native  citizen 
is  nonplused  by  shifting  and  unstable  legal  standards.  The  conse- 
quences of  action  may  be  that  the  individual  is  subjected  to  extraor- 
dinary civil  and  criminal  liability,  for  society  imputes  legal  responsi- 
bility to  one  definite  act  of  the  many  which  have  co-operated  to  pro- 
duce the  final  result.  The  criminal  act  itself  is  criminal  in  view 
of  the  social  attitude  which  prevails  at  the  time,  and  the  justice  of 
enforcing  the  social  attitude  is  dependent  upon  announcement  of  it 
beforehand  in  terms  sufficiently  definite  to  put  individuals  upon  their 
guard. 

Uncertainty  as  to  what  is  legal,  when  the  consequences  of  guess- 
ing wrongly  may  result  in  heavy  penalties,  blights  forward  action 
in  its  very  inception,  at  the  moment  when  the  individual  is  deciding 
to  make  the  positive  step  required  to  overcome  the  safety  and  cer- 
tainty of  doing  nothing.  At  this  point  the  society  whose  duty  it  was 
to  establish  laws  and  administer  justice  finds  itself  deeply  con- 
cerned, for  upon  the  decision  of  the  individuals  depends  its  progress 
as  a  group.  Activity  of  individuals  is  even  more  necessary  to  so- 
ciety than  regulatory  measures  whose  purpose  is  to  secure  the  best 
type  of  activity.  But  when  the  rules  of  law  depart  from  fixed 
standards  to  suit  the  exigencies  of  particular  cases  to  such  an  extent 
that  they  cease  to  be  trustworthy  guides  for  future  action,  then  law, 
instead  of  creating  an  attitude  favorable  to  progress,  deadens  indi- 
vidual activity.  In  society  as  at  present  organized  the  social  advan- 
tages of  continued  production  and  the  opening  of  new  lines  of  en- 
terprise would  be  destroyed,  were  law  made  immediately  responsive 
to  social  conditions,  by  the  very  agency  which  is  designed  to  increase 


SOCIAL-LEGAL  INSTITUTIONS  657 

social  efficiency.  A  fairly  stable  and  certain  standard  of  law  must 
necessarily  be  established  to  tempt  individual  initiative,  and  this  im- 
plies that  individual  standards  of  justice  must  give  way  to  a  com- 
mon standard  of  justice,  which  all  individuals  having  social  dealings 
can  understand  and  interpret.  Otherwise  the  plea  of  unusual  cir- 
cumstances or  peculiar  temperament  will  readily  lend  itself  to  arbi- 
trary and  capricious  rules  of  law,  the  very  possibility  of  which  will 
foster  suspicion  and  distrust  of  judicial  processes.  It  is  only  be- 
cause men  are  fairly  certain  that  the  main  bases  of  property  and 
contract  rights  will  not  be  suddenly  and  substantially  altered  to 
their  disadvantage,  that  they  strike  out  into  new  fields  of  enterprise. 
It  is  only  because  individuals  are  confident  that  the  court  will  not 
construct  special  standards  to  apply  to  their  acts,  that  they  will  pro- 
ceed with  decision  upon  tomorrow's  work.  If  all  things  were  sub- 
ject to  change,  would  anyone  confine  his  attention  to  one  task  even 
for  a  moment?  Entrepreneurs  may  be  able  to  calculate  with  some 
degree  of  accuracy  the  probable  changes  in  the  factors  which  will 
affect  future  markets  for  their  products,  but  if  the  very  standards 
by  which  they  have  made  their  calculations  vary  at  the  discretion  of 
a  future  court,  how  accurately  can  they  allow  for  these  imprece- 
dented  psychological  factors? 

Definite  rules  of  law  are  formulated  by  court  decisions  as  well 
as  by  statutory  enactment.  In  the  case  of  court-made  law  the  recog- 
nition of  precedents  is  indispensable  to  the  existence  of  the  law,  for 
a  legal  principle  is  not  established  until  it  comes  to  be  acknowledged 
as  binding  upon  the  facts  to  which  it  applies.  As  fast  as  new  laws 
are  developed,  the  number  of  doubtful  questions  is  diminished,  and 
the  road  is  cleared  for  fresh  consideration  of  new  situations  which 
arise  out  of  the  dynamic  progress  of  society.  It  is  as  necessary, 
therefore,  that  the  courts  be  relieved  of  the  enormous  burden  of  re- 
considering old  issues,  as  it  is  for  the  individual  to  find  definiteness 
in  the  law.  As  individuals  accept  the  greater  part  of  the  questions 
arising  out  of  their  social  relations  as  definitely  settled,  and  proceed 
to  expend  money  and  effort  upon  the  assumption  that  the  definite 
rules  will  not  be  reversed,  so  the  courts  resolve  new  cases  by  com- 
paring them  with  cases  already  decided.  In  thus  basing  their  de- 
cisions on  precedent,  the  courts  are  often  unfairly  accused  of  ap- 
plying a  blind  rule  of  thumb  to  avoid  the  trouble  of  exerting  in- 
genuity and  using  wisdom  in  devising  methods  of  equitable  relief. 
But  it  is  manifestly  far  more  unjust  to  reverse  the  settled  principles 
upon  the  faith  of  which  men  have  acquired  power  and  governed  their 
courses  of  action  in  the  past  than  to  enact  into  law  the  court's  own 
unfettered  opinion  as  to  the  justice  of  the  case,  which  may  or  may 


658  CURRENT  ECONOMIC  PROBLEMS 

not  coincide  with  what  is  generally  accepted.  Considerations  of 
practicability  enforce  this  course  upon  the  courts.  The  task  of 
reconciling  conflicting  precedents  itself  gives  the  widest  leeway  for 
the  exercise  of  ingenuity,  and  the  frequency  with  which  cases  are 
decided  by  a  divided  opinion  indicates  the  difficulty  involved  in 
finding  a  definite  course.  The  application  of  legal  principles  is  con- 
sequently far  more  than  the  readaptation  of  past  rules  to  present 
situations.  The  growth  of  new  social  environments  changes  the 
force  of  old  arguments  and  compels  a  modification  of  many  rules. 
The  precedent  which  was  at  first  stated  in  a  broad  and  abstract  form 
is  given  definite  meanings  by  concrete  applications.  Its  logical  rela- 
tionship to  other  precedents  is  developed  as  occasion  requires,  and 
the  extent  of  its  scope  is  definitely  determined  by  an  interaction  with 
other  precedents.  Into  the  old  rules  is  infused  the  spirit  of  the  new 
developments;  the  outworn  and  archaic  elements  are  cast  out  and 
new  elements  are  added.  The  whole  system  of  jurisprudence  is 
made  to  grow  by  mingling  into  the  substance  of  the  law  the  view-' 
points  of  each  successive  age. 


B.     PRIVATE  PROPERTY 
320.    The  Development  of  the  Right  of  Property* 

BY  GkoRGE  B.  NEWCOMB 

Private  property,  which  we  are  wont  to  regard  as  essential  to 
liberty,  was  the  product  of  experiment  rather  than  the  conscious 
device  of  reason.  Authorities  on  primitive  peoples  have  given 
us  the  strongest  reason  "for  thinking  that  property  once  belonged, 
not  to  the  individuals,  but  to  larger  societies,  composed  on  the  patri- 
archal model."  Actual  examination  of  existing  village  communities 
affords  support  to  the  conjecture  "that  private  property,  in  the  shape 
in  which  we  knov\^  it,  was  chiefly  formed  by  the  gradual  disentangle- 
ment of  the  separate  rights  of  individuals  from  the  blended  rights 
of  the  community." 

Progress  in  the  history  of  nations  is  certainly  marked  by  the 
recognition  of  private  property;  and  by  an  increase,  as  well,  in  the 
amount  and  variety  of  individual,  compared  with  public  or  unap- 
propriated goods,  as  in  the  abstractness  or  far-reachingness  of  the 
individual  claim.  This  indicates  that  society  is  unconsciously  adapt- 
ing itself  to  the  necessity  of  altered  conditions.    Practices  introduced 

^Adapted  from  "Theories  of  Property,"  in  the  Political  Science  Quar- 
terly, I,  595-599.    Copyright  (1886). 


SOCIAL-LEGAL  INSTITUTIONS  659 

accidentally  became  habitual  and  universal  by  the  experience  of  their 
advantages.  At  first  the  ethical  feeling  of  society  was  undoubtedly 
against  property,  since  everything  that  tended  to  individualism  was 
discouraged  by  the  tribal  feeling  of  self-preservation.  Its  establish- 
ment was  a  mere  concession  to  necessity. 

The  right  of  private  property  was  vigorously  asserted  by  the 
Romans  and  inserted  in  their  law.  The  close  binding  up  of  property 
with  the  person  of  the  owner  was  due  to  the  influence  of  the  time 
when  the  claim  to  private  property  was  founded  in  the  personal 
prowess  of  the  warrior.  The  principle  of  law  referred  the  right  of 
property  to  "first  possession,  labor,  succession,  and  donation." 

The  life  and  thought  of  the  Middle  Ages  were  unfavorable  to 
the  development  of  the  feeling  of  individual  right  in  property,  though 
the  way  was  slowly  preparing  for  this.  The  influence  of  the  Chris- 
tian conception  of  the  sacredness  of  the  human  person  was  operating 
silently;  the  laborer  was  not  absolutely  enslaved.  And  the  power 
of  the  military  chief  over  his  domain  land  gives  an  absolute  con- 
ception of  property,  which  is  transferred  to  individual  ownership 
generally  after  the  dissolution  of  feudal  institutions.  Hence,  so 
long  as  feudalism  held  its  sway,  modern  property  conceptions  could 
not  make  way.  The  rights  of  labor  could  have  no  standing;  for, 
"if  any  tenant  were  allowed  to  acquire  property  in  the  improve- 
ments effected  by  him,  the  whole  feudal  system  of  mutual  depend- 
ence and  obligation  would  have  been  at  an  end."  The  feudal  baron 
expressed  his  title  in  the  robber-motto:  Per  Detim  et  ferrum, 
obtimii.  The  bucolic  contentment  of  this  simpler  period,  the  ab- 
sence of  trade  to  awaken  multifarious  desires,  and  the  influence  of 
religion,  all  contributed  to  repress  economic  individualism.  As  for 
the  last-mentioned  influence,  property  was  regarded  as  an  encroach- 
ment on  the  original  rights  of  all  the  members  of  the  human  family. 

Very  different  were  the  ideals  of  that  time  from  those  of  the  in- 
dustrial age  soon  to  follow :  in  the  one,  poverty  canonized ;  in  the 
other,  poverty  remanded  to  the  fit  society  of  stupidity  and  indolence ! 
But  even  when  the  whir  of  industrial  activity  began  in  the  Middle 
Ages,  the  spirit  and  method  of  work  is  still  comparatively  com- 
munal. 

It  is  not  necessary  to  point  out  all  the  causes — notably  the  devel- 
opment of  industrialism,  the  growth  of  the  contract  system,  and  the 
increase  of  wealth  by  trade  and  commerce — which  aided  to  give 
that  strength  to  the  feeling  of  right  attending  private  possession, 
which  has  in  modern  times  made  it  so  self -asserting.  Only  it  should 
not  be  overlooked  that  with  the  growth  of  property  man  became 
intensely  attached  to  what  he  owns. 


66o  CURRENT  ECONOMIC  PROBLEMS 

321.     Property  and  Stewardship' 

BY  ST.  BASIIv 

The  rich  man  argues,  Whom  am  I  wronging  so  long  as  I  keep 
what  is  my  own?  Tell  me,  just  what  things  are  your  own?  From 
whom  did  you  get  them  to  make  them  an  inseparable  part  of  your 
life?  You  act  like  a  man  in  a  theater  who  hastens  to  seize  all  the 
seats  and  prevent  the  others  from  entering,  keeping  for  his  own 
use  what  was  meant  for  all.  How  do  the  rich  become  rich  save 
by  the  seizure  of  the  things  that  belong  to  all?  The  earth  is  given 
in  common  to  all  men.  Let  no  man  call  his  own  that  which  has  been 
taken  in  excess  of  his  needs  from  a  common  store.  If  everyone 
were  to  take  simply  what  he  needed,  there  would  be  no  distinction 
of  rich  and  poor.  Were  you  not  born  naked?  Shall  you  not  return 
naked  to  the  earth?  Whence  then  the  goods  you  now  possess?  If 
you  ascribe  them  to  fate  you  are  godless,  neither  recognizing  the 
Creator  nor  being  grateful  to  the  giver.  But  you  acknowledge  they 
are  from  God.  Tell  us,  then,  why  you  received  them.  Is  God  un- 
fair in  the  equal  distribution  of  the  good  things  of  life?  Why  is  it 
that  you  are  rich  and  another  is  in  need?  Isn't  it  wholly  that  you 
may  win  the  reward  of  kindness  and  of  faithful  stewardship,  and 
that  he  may  be  honored  with  the  great  prize  of  patience  ?  Now  after 
seizing  all  things  in  your  insatiable  greed,  and  thus  shutting  out  oth- 
ers, do  you  really  think  you  are  wronging  no  man?  Who  is  the 
man  of  greed?  He  who  is  not  content  with  a  sufficiency?  Who  is 
the  thief?  He  who  seizes  everybody's  goods?  What  are  you  but 
a  greedy  miser?  What  are  you  but  a  thief?  The  things  you  re- 
ceived to  dispense  to  others,  these  you  made  your  own.  The  man 
who  steals  a  coat  from  another  is  called  a  thief.  Is  he  who  can 
clothe  a  naked  man  and  will  not,  worthy  of  any  other  name?  The 
bread  you  keep  in  store  is  the  hungry  man's  bread.  The  cloak  which 
you  guard  in  the  chest  belongs  to  the  naked  man.  The  silver  you 
hide  away  belongs  to  the  needy.  Thus  it  is  that  you  are  wronging  as 
many  men  as  you  might  help  if  you  chose. 

322.     The  Ethics  of  Property* 

BY  PIERRE  JOSEPH  PROUDHON 

If  I  were  asked  to  answer  the  question,  "What  is  slavery?"  and 
I  should  answer  in  one  word,  "It  is  murder,"  my  meaning  would  be 

"Adapted  from  Migne,  Patrologiae  Cursus  Completus,  Series  Graeca, 
XXXI,  col.  275  (370). 

•Adapted  from  What  Is  Property?  12-13.  Tr.  by  Benjamin  R,  Tucker 
(1840). 


SOCIAL-LEGAL  INSTITUTIONS  66i 

understood  at  once.  No  extended  argument  would  be  required  to 
show  that  the  power  to  take  from  a  man  his  thought,  his  will,  his 
personality,  is  a  power  of  life  and  death ;  and  that  to  enslave  a  man 
is  to  kill  him.  Wliy,  then,  to  this  other  question,  "What  is  prop- 
erty?"' may  I  not  likewise  answer,  "It  is  robbery,"  without  the  cer- 
tainty of  being  misunderstood;  the  second  proposition  being  no 
other  than  a  transformation  of  the  first? 

One  author  teaches  that  property  is  a  civil  right,  bom  of  occu- 
pation and  sanctioned  by  law ;  another  maintains  that  it  is  a  natural 
right,  originating  in  labor — and  both  of  these  doctrines,  totally  op- 
posed as  they  may  seem,  are  encouraged  and  applauded.  I  contend 
that  neither  labor,  nor  occupation,  nor  law,  can  create  property ;  that 
it  is  an  effect  without  a  cause :  am  I  censurable  ? 

But  murmurs  arise! 

Property  is  robber)^!    That  is  the  signal  of  revolutions. 

Reader,  calm  yourself.  I  am  no  agent  of  discord,  no  firebrand 
of  sedition.  I  anticipate  history  by  a  few  days;  I  disclose  a  truth 
whose  development  we  may  try  in  vain  to  arrest;  I  write  the  pre- 
amble of  our  future  constitution.  This  proposition  which  seems  to 
you  blasphemous — property  is  robbery — would,  if  our  prejudices 
allowed  us  to  consider  it,  be  realized  as  the  lightning-rod  to  shield 
us  from  the  coming  thunderbolt;  but  too  many  interests  stand  in 
the  way!  Alas!  philosophy  will  not  change  the  course  of  events: 
destiny  will  fulfil  itself  regardless  of  prophecy.  Besides,  must  not 
justice  be  done  and  our  education  be  finished? 

323.     Progress  and  Property^ 

BY  PAUL  ELMER  MORE 

Not  even  a  Rousseau  could  cover  up  the  fact  of  the  initial  in- 
equality of  men  by  the  decree  of  that  great  Ruler  or  Law  which 
makes  one  vessel  for  dishonor  and  another  for  honor.  This  is  the 
so-called  injustice  of  nature.  And  it  is  equally  a  fact  that  property 
means  the  magnifying  of  that  natural  injustice  into  that  which  you 
may  deplore  as  unnatural  injustice,  but  which  is  a  fatal  necessity, 
nevertheless.  This  is  the  truth,  hideous  if  you  choose  to  make  it  so 
to  yourself,  true  to  those,  whether  the  favorites  of  fortune  or  not, 
who  are  themselves  true — ineluctable  at  least. 

Unless  we  are  willing  to  pronounce  civilization  a  grand  mistake, 
as,  indeed,  religious  enthusiasts  have  ever  been  prone  to  do  (and 
himianitarianism  is  more  a  perverted,  religion  than  a  false  eco- 
nomics), unless  our  material  progress  is  all  a  grand  mistake,  we  must 

^Adapted  from  an  article  entitled  "Property  and  Law,"  in  the  Uttpopulat 
Review,  III,  259-268.    Copyright  (1915). 


662  CURRENT  ECONOMIC  PROBLEMS 

admit,  sadly  or  cheerfully,  that  any  attempt  by  government'  to  ig- 
nore that  inequality  may  stop  the  wheels  of  progress  or  throw  the 
world  back  into  temporary  barbarism,  but  will  surely  not  be  the 
cause  of  wider  or  greater  happiness.  It  is  not  heartlessness,  there- 
fore, to  reject  the  sentiment  of  the  humanitarian,  and  to  avow  that 
the  security  of  property  is  the  first  and  all-essential  duty  of  a  civil- 
ized community. 

And  we  may  assert  this  truth  more  bluntly,  or,  if  you  please,  more 
paradoxically.  Although,  probably,  the  rude  government  of  bar- 
barians, when  the  person  was  scantily  covered  or  surrounded  by 
property,  may  have  dealt  principally  with  wrongs  to  persons,  yet  the 
main  care  of  advancing  civilization  has  been  for  property.  One 
reason,  of  course,  is  that  the  right  of  life  is  so  obvious,  and  in  the 
nature  of  things  has  been  so  long  and  universally  recognized.  But, 
after  all,  life  is  a  very  primitive  thing.  Nearly  all  that  makes  it  more 
significant  to  us  than  to  the  beast  is  associated  with  property.  To 
the  civilized  man  the  rights  of  property  are  more  important  than 
the  right  to  life. 

In  our  private  dealings  with  men,  we  may  ignore  the  laws  of 
civilization  with  no  harm  resulting  to  society ;  but  it  is  different  when 
we  undertake  to  lay  down  general  rules  of  practice.  We  are  essen- 
tially, not  legislators,  but  judges.  And  what  then,  you  ask,  are 
human  laws  ?  In  sober  sooth,  it  is  not  we  who  create  laws ;  we  are 
rather  finders  and  interpreters  of  natural  laws,  and  our  decrees  are 
merely  the  application  of  our  knowledge,  or  our  ignorance,  to  par- 
ticular conditions.  When  our  decrees  are  counter  to  natural  law, 
they  become  at  best  dead  letters,  and  at  worst,  agents  of  trouble 
and  destruction.  Law  is  but  a  rule  for  regulating  the  relations  of 
society  for  practical  purposes.  We  are  bound  to  deal  with  man  as 
he  actually  is.  So,  if  our  laws  are  to  work  for  progress,  they 
must  recognize  property  as  the  basis  of  civilization,  and  must  admit 
the  consequent  inequality  of  conditions  among  men.  They  will  have 
relatively  little  regard  for  labor  in  itself  or  for  the  laborer  in  him- 
self, but  they  will  provide  rigidly  that  labor  shall  receive  the  recom- 
pense it  has  bargained  for,  and  that  the  laborer  shall  be  secure  in 
the  possession  of  what  he  has  received.  We  may  try  to  teach  him 
to  produce  more,  or  to  bargain  better,  but  in  the  face  of  all  appeals 
of  sentiment  society  must  learn  again  today  that  it  cannot  legislate 
contrary  to  the  decrees  of  Fate.  Law  is  concerned  primarily  with 
the  rights  of  property. 

So  directly  is  the  maintenance  of  civilization  and  peace  and  all 
our  welfare  dependent  upon  this  truth — that  it  is  safer,  in  the  ut- 


SOCIAL-LEGAL  INSTITUTIONS  663 

terance  of  law,  to  err  on  the  side  of  natural  equality  than  on  the 
side  of  ideal  justice.  We  can  do  something  to  control  the  power  of 
cunning  and  rapacity,  and  to  make  the  distribution  of  material  ad- 
vantages fall  more  in  conformity  with  superiority  of  character  and 
culture.  We  can  go  a  little  way,  and  very  slowly,  in  the  endeavor 
to  equalize  conditions  by  the  regulation  of  property;  but  the  ele- 
ments of  danger  are  always  near  at  hand  and  insidious ;  and  undoubt- 
edly any  legislation  that  deliberately  releasee  labor  from  the  obliga- 
tions of  contract,  and  permits  it  to  make  war  on  property  with  im- 
punity, must  be  regarded  as  running  counter  to  the  first  demands  of 
society.  It  is  an  ugly  fact  that,  under  cover  of  the  natural  inequality 
of  property,  evil  and  greedy  men  will  act  in  a  way  that  can  only  be 
characterized  as  legal  robbery.  The  state  should  prevent  such 
action  so  far  as  it  safely  can.  Yet  even  here,  in  view  of  the  magni- 
tude of  the  interests  involved,  it  is  better  that  legal  robbery  should 
exist  along  with  the  maintenance  of  law,  than  that  legal  robbery 
should  be  suppressed  at  the  expense  of  law. 

You  may  to  a  certain  extent  control  property  and  make  it  sub- 
servient to  the  ideal  nature  of  man;  but  the  moment  you  deny  its 
rights,  or  undertake  to  legislate  in  defiance  of  them,  you  may  for  a 
time  unsettle  the  very  foundations  of  society,  you  will  certainly  in 
the  end  render  property  your  despot  and  so  produce  a  materiaUzed 
and  debased  civilization.  Manifestly,  the  mind  will  be  free  to  en- 
large itself  in  immaterial  interests  only  when  the  material  basis  is 
secure,  and  without  a  certain  degree  of  such  security  a  man  must 
be  anxious  over  material  things  and  preponderantly  concerned  with 
them.  And,  manifestly,  if  this  security  is  dependent  upon  the  right 
of  property,  and  these  rights  are  denied  or  belittled  in  the  name  of 
some  impossible  ideal,  it  follows  that  the  demands  of  intellectual 
leisure  will  be  regarded  as  abnormal  and  anti-social. 

No  doubt  the  ideal  society  would  be  that  in  which  every  man 
should  be  filled  with  noble  aspirations.  But  I  am  not  here  con- 
cerned with  Utopian  visions.  My  desire  is  to  confirm  in  the  dic- 
tates of  their  own  reason  those  who  believe  that  the  private  owner- 
ship of  property  is,  with  very  limited  reservations,  essential  to  the 
material  stability  and  progress  of  society.  We  who  have  this  con- 
viction need  to  remind  ourselves  that  laws  which  would  render  cap- 
ital insecure,  and,  by  a  heavy  income  tax  or  other  discrimination  in 
favor  of  labor,  would  deprive  property  of  its  power  of  easy  self- 
perpetuation,  though  they  speak  loudly  in  the  name  of  humanity, 
will  in  the  end  be  subversive  of  those  conditions  under  which  alone 
any  true  value  of  human  life  can  be  realized. 


664  CURRENT  ECONOMIC  PROBLEMS 

This,  I  take  it,  is  the  reason  that  the  church  and  the  university 
have  almost  invariably  stood  as  strongly  reactionary  against  any  in- 
novation which  threatened  the  entrenched  rights  of  property.  It  is 
not  at  bottom  the  greed  of  possession  that  moves  them,  nor  are  we 
justified  in  casting  into  their  teeth  the  reproach  that  they  who  pro- 
fess to  stand  for  spiritual  things  are  in  their  corporate  capacity  the 
most  tenacious  upholders  of  worldly  privilege.  They  are  guided  by 
an  instinctive  feeling  that  in  this  mixed  and  mortal  state  of  our  exis- 
tence, the  safety  and  usefulness  of  the  institutions  they  control  are 
finally  bound  up  with  the  inviolability  of  property  which  has  been 
devoted  to  unworldly  ends.  For  if  property  is  secure  it  may  be  a 
means  to  an  end,  whereas  if  it  is  insecure  it  will  be  the  end  itself. 

324.     Mine — Property   and   Rights' 

BY  DAVID  M.   PARRY 

1.  Man  must  work  for  a  living.  He  would  have  no  intelligence 
if  he  lived  in  a  Garden  of  Eden,  because  if  Nature  provided  all  his 
needs  ready  to  hand  for  his  use  there  would  be  no  reason  for  him  to 
do  any  thinking,  and  the  result  would  be  that  he  wouldn't  think. 
Therefore  it  is  in  order  to  make  him  develop  his  intelligence  that 
man  is  compelled  to  wrestle, with  nature  for  his  livelihood. 

2.  Each  man  is  entitled  to  the  results  of  his  own  exertions.  To 
say  otherwise  would  be  to  assert  that  some  men  have  the  right  to 
live  on  the  fruits  of  the  toil  of  others  without  working  themselves, 
which  would  be  contrary  to  our  first  proposition.  Hence  personal 
ownership  of  property  is  a  necessary  deduction  from  the  law  that 
man  must  work  for  a  living. 

3.  Each  individual  is  entitled  to  freedom  of  action.  Being 
assured  that  what  he  produces  is  his  own  he  is  constantly  spurred 
on  to  develop  his  capacity  to  produce.  Being  assured  also  that  he 
cannot  profit  by  another's  exertions  he  realizes  that  he  is  responsible 
to  himself  alone  for  what  he  makes  out  of  himself.  Therefore  each 
man  has  an  undeniable  right  to  dispose  of  his  own  time  and  labor 
as  he  sees  fit,  or  in  other  words  to  work  out  his  own  destiny.  The 
effect  of  this  is  to  develop  strong,  self-reliant  and  intelligent  men. 
It  brings  into  play  the  creative  faculty  of  man,  his  highest  faculty, 
and  the  faculty  that  constitutes  him  a  free  agent  in  so  far  as  he  is 
such  an  agent. 

4.  It  is  right  and  just  that  one  man  should  obtain  more  of  this 
world's  goods  than  another.  Since  personal  ownership  of  property 
and  individual  freedom  are  both  valid  deductions   from  the  first 

'Adapted  from  To  Organized  Labor,  16-18  (1903). 


SOCIAL-LEGAL  INSTITUTIONS  665 

premise  that  all  men  shall  work,  then  no  complaint  can  honestly  be 
made  because  one  man  by  superior  exertion  or  ability  manages  to 
produce  more  than  another  and  consequently  has  more  to  show  for 
his  labor  than  another.  The  fact  that  one  man  succeeds  in  making 
himself  a  better  living  than  others  is  itself  a  spur  to  other  men  to 
try  all  the  harder.  This  is  what  causes  progress  and  the  evolution 
of  the  race. 

5.  Capital  arises  by  reason  of  the  fact  that  one  man  can  produce 
and  own  more  than  another.  Some  men  find  that  they  can  produce 
more  than  they  absolutely  need  for  themselves,  and  therefore  they 
store  up  some  of  their  labor  in  making  a  machine,  and  this  machine 
is  capita).  Here  is  your  frightful  "bugbear,"  capital,  coming  into 
existence  as  the  direct  and  legitimate  result  of  the  so-called  primal 
curse  that  man  must  labor.  It  is  born  as  the  result  of  the  industry, 
thrift,  self-sacrifice,  and  intelligence  of  the  few  as  compared  to 
the  many. 

6.  Industrial  ownership  of  capital  is  not  only  the  direct  deduc- 
tion from  the  right  of  every  man  to  that  which  he  possesses,  but 
it  is  also  necessary  for  its  creation.  Men  will  waste  their  property 
in  fast  living  or  they  will  work  only  part  of  the  time  if  they  find 
that  there  is  no  profit  in  saving.  If  a  man  employs  men  to  make  a 
machine  and  pays  them  out  of  his  savings,  certainly  these  men  have 
no  valid  title  to  the  machine,  for  they  have  received  for  their  toil 
as  much,  if  not  a  little  more,  than  they  would  have  received  for  any 
other  labor  they  could  have  performed.  Neither  have  the  men  who 
are  subsequently  employed  to  run  the  machine  any  title  of  owner- 
ship in  it,  for  they  certainly  cannot  claim  to  have  made  it.  The 
ownership  correctly  lies  in  the  man  who  paid  for  the  making  of  it, 
and  the  fact  that  men  can  convert  their  savings  into  a  productive 
machine  that  will  grind  out  more  savings  is  the  incentive  that  causes 
men  to  have  machinery  made. 

7.  Capital,  despite  individual  ownership,  benefits  the  many  much 
more  than  it  does  the  few.  It  is  in  fact  emancipating  man  from 
drudgery  and  poverty.  Capital  brings  to  the  assistance  of  man  the 
forces  of  nature  in  producing  commodities.  It  not  only  enables  him 
to  produce  the  things  he  needs  or  desires  with  the  expenditure  of 
less  labor  than  formerly,  but  it  constantly  tends  to  lift  him  up  from 
lower  to  higher  pursuits. 

8.  Wages  are  dependent  upon  the  aggregate  production.  If  a 
nation  produces  but  little  there  is  but  little  to  divide.  The  opposite 
is  true  if  it  produces  a  great  deal.  Now  the  utilization  of  capital  is 
the  only  method  of  greatly  increasing  the  production  per  capita. 
Strikes,  organized  idleness,  boycotts,  etc.,  cannot  fail  in  reducing 


666  CURRENT  ECONOMIC  PROBLEMS 

instead  of  increasing  the  general  rate  of  wages,  and  that  because 
they  decrease  the  aggregate  production  instead  of  increasing  it. 
Since  they  cause  less  to  be  made  than  would  have  been  made,  it  is 
a  clear  mathematical  proposition  that  some  are  going  to  suffer  when 
it  comes  to  casting  up  the  balance  sheet. 

9.  The  law  of  supply  and  demand  is  the  great  law  regulating 
industry  under  this  individualistic  or  capitalistic  regime.  It  operates 
(i)  to  direct  the  energies  of  the  nation  along  channels  that  will 
be  the  most  profitable  to  all;  (2)  it  makes  on  the  whole  the  highest 
possible  use  of  every  individual  according  to  his  capability  and  the 
need  that  exists  for  various  kinds  of  services  he  can  perform; 
(3)  it  regulates  the  accumulation  of  capital,  tending  to  increase  its 
accumulation  more  at  one  time  than  at  another,  dependenf  upon  the 
urgency  of  the  need  for  it;  (4)  it  increases  nominal  wages  and 
decreases  the  prices  of  commodities  as  it  becomes  more  utilized,  thus 
automatically  giving  to  labor  the  benefits  of  capital  as  fast  as  it  is 
to  the  interest  of  labor  that  it  should  be  done. 

325.     My  Apology 

BY  P.  PROPERTY 

What  have  I  to  say  why  judgment  should  not  be  passed  against 
me  ?  why  I  should  not  be  banished  from  human  society  ?  why,  with 
creatures  of  darkness,  I  should  not  be  cast  into  the  outer  void?  I 
have  little  to  say.  But  my  long  and  effective  services  to  society 
speak  eloquently  for  themselves,  and  I  may  as  usual  content  myself 
with  few  words.  I  need  only  enumerate  in  briefest  form  the  rec- 
ord of  my  accomplishments,  and  I  feel  that  my  defense  is  complete. 
I  mention  my  achievements  not  boastfully,  being  as  modest  as  my 
first  name  Private  signifies,  but  only  as  earnests  of  what  society  may 
expect  from  me  in  the  future. 

For  society,  and  in  furtherance  of  civilization,  I,  Private  Prop- 
erty, assert  that  I  have  performed  these  services,  to-wit : 

First,  I  have  rendered  the  fundamental  conditions  of  social  and 
industrial  Hfe  safe  and  secure.  Before  I  came  into  my  own,  the 
power  to  seize  and  hold  summed  up  the  ethics  of  ownership.  Ener- 
gies that  might  have  gone  into  more  productive  employments  were 
used  in  defending  one's  own  or  in  appropriating  one's  neighbor's. 
But  I  established  and  secured  social  sanction  and  universal  respect 
for  the  right  of  possession. 

Second,  the  security  thus  afforded  had  caused  the  energies  of 
men  to  be  diverted  from  the  acquisition  to  the  production  of  wealth. 
It  has  led  to  the  utilization  of  natural  resources,  and  has  provided 


SOCIAL-LEGAL  INSTITUTIONS  667 

opportunity  for  the  use  of  long-jcontinued  and  consistent  industrial 
policies  which  have  caused  material  goods  to  increase  verily  a  hun- 
dred fold. 

Third,  such  security  has  furnished  an  incentive  to  man  as  a 
worker  to  utilize  his  productive  capacities  to  the  full.  It  has  caused 
him  to  sow,  because  it  has  promised  that  he,  and  not  another,  should 
reap.  It  has  led  him  to  sacrifice  immediate  gain  in  establishing  new 
processes  and  in  devising  new  instruments  of  production  to  the  end 
that  the  earth  might  be  crowned  with  abundance. 

Fourth,  I  plead  innocent  of  the  charge  of  having  favored  a  priv- 
ileged "leisure  class,"  upon  whom  I  have  showered  plenty  that  has 
been  wasted  in  riotous  living.  It  is  true  that  I  have  conferred 
wealth  upon  a  few.  But  these  few  I  have  not  particularly  favored. 
I  have  chosen  them  for  highly  important  and  extremely  dangerous 
social  service.  I  have  assigned  to  them  the  task  of  experimentation 
in  consumption.  Whatever  bad  they  have  found  they  have  dis- 
carded. The  good  that  they  have  discovered  has  in  time  been  made 
the  property  of  the  masses.  They  are  the  vanguard  of  my  army 
which  is  engaged  in  raising  the  standard  of  living.  The  goods  sup- 
plied to  them  are  not  rewards;  they  consist  only  of  the  laboratory 
materials  necessary  to  the  work  which  they  are  doing.  Witness 
their  suffering,  their  costs,  and  you  can  appreciate  the  heroism 
which  makes  them  willing  to  serve  society  in  so  dangerous  and 
important  an  undertaking.  The  extent  to  which,  through  their 
pioneer  service,  the  formerly  rigid  boundaries  of  consumption  have 
been  extended  attests  my  wisdom. 

Fifth,  I  have  greatly  increased  the  product  of  industry  by  the 
use  of  vast  stores  of  capital.  The  economic  inequality  which  I 
have  perpetuated  has  been  the  cause  of  the  existence  of  so  fruitful 
a  fund.  For  its  bulk  has  come  from  the  very  large  incomes  whose 
source  I  am.  The  savings  which  become  the  capital  that  turns  the 
wheels  of  our  mills,  runs  our  machines,  and  speeds  our  trains  across 
the  continent  on  their  missions  of  service  are  possible  only  >because 
of  me.  And,  but  for  the  security  which  I  offer,  the  investment  of 
these  savings  would  be  impossible. 

Sixth,  I  supply  the  people  with  abundance-  and  contribute  to  the 
fullness  of  their  lives.  The  security  which  I  have  brought  about 
has  almost  eliminated  risks.  The  result  is  decreased  costs,  which  I 
generously  offer  to  the  public  in  decreased  prices.  The  long-time 
productive  operations,  the  improvements  in  technique,  and  the  cumu- 
lative investment  of  capital,  which  I  have  brought  about,  confer  the 
favors  of  plenty,  variety,  and  cheapness  upon  all  sorts  and  condi- 
tions of  men.    My  aristocratic  methods  have  been  mere  devices  for 


668  CURRENT  ECONOMIC  PROBLEMS 

securing  democratic  ends.  I  havq  forced  my  owners  to  use  me 
productively.     I  have  made  them  stewards  of  the  commonweal. 

Seventh,  I  have  led  society  in  its  development  to  higher  and 
higher  planes.  Out  of  my  abundance  they  have  been  able  to  satisfy 
more  and  more  of  their  material  wants.  The  certainty  with  which 
I  have  endowed  the  satisfaction  of  the  necessary  material  wants  has 
enabled  those  who  choose  to  give  of  their  time,  energy,  and  means 
to  the  immaterial  things  of  life.  Our  culture,  with  its  wide  horizon 
and  its  varied  content,  is  my  handiwork.  That  civilization  is  not 
coarse  and  material  and  brutal  is  my  doing. 

Eighth,  I  have  prevented  a  passing  sentimentalism  from  sacri- 
ficing these  more  permanent  values  to  the  passing  fancy  of  the 
moment.  I  have,  at  the  cost  of  much  misunderstanding  and  malig- 
nant criticism,  prevented  the  wealth  that  was  needed  for  a  richer 
life  for  the  generations  of  the  future  from  being  wasted  in  satisfy- 
ing the  immediate  wants  of  a  few  surplus  individuals  who  promised 
no  contribution  to  culture.  I  have  preferred  to  have  such  wealth 
used  in  enlarging  capital,  thus  making  for  bounty  of  goods,  and  in 
social  experimentation  whose  end  was  to  lead  men  to  richer  and 
fuller  life.  I  have  seen  clearly  that  a  deficiency  of  human  life  could 
easily  be  supplied  within  a  generation,  but  that  a  deficiency  in  capital 
can  never  be  made  up;  that  cumulatively  it  becomes  greater  as  the 
years  pass ;  and  that  it  must  deny  life  to  many  yet  unborn  and  rob 
others  of  comforts  which  otherwise  would  have  made  their  lives  less 
vain  and  hollow. 

Ninth,  I  have  proved  myself  the  custodian  of  peace  and  have 
laid  the  foundations  of  a  world-wide  Christian  community.  The 
system  of  vested  interests  with  which  I  have  surrounded  labor  and 
capital  has  done  more  for  the  cause  of  peace  than  all  other  agencies 
combined.  For  I  have  increased  many  fold  the  costs  to  all  classes 
of  engaging  in  war.  The  world-wide  industrial  system  which  I  have 
wrought  is  more  powerful  than  all  armaments  combined  in  pro- 
tecting a  state  against  the  encroachments  of  another  state  and  it 
contributes  more  to  nation's  understanding  of  nation  than  the  whole 
world-wide  system  of  diplomacy.  My  success  has  not  been  com- 
plete, but  that  merely  makes  my  continued  presence  and  activity  all 
the  more  necessary. 

I  would  not  detract  one  whit  from  the  good  intentions  of  my 
malefactors.  I  bear  them  no  malice.  My  only  plea  is  that  I  be 
judged  according  to  my  fruits.    I  am  done. 


SOCIAL-LEGAL  INSTITUTIONS  669 

C.     INDUSTRIAL  LIBERTY 
326.     The  Mediatory  Character  of  Freedom* 

BY  THOMAS  HILL  GREKN 

We  shall  probably  all  agree  that  freedom,  rightly  understood,  is 
the  greatest  of  blessings.  But  when  we  thus  speak  of  freedom,  we 
do  not  mean  freedom  from  restraint  or  compulsion.  We  do  not 
mean  merely  freedom  to  do  as  we  like  quite  irrespective  of  what  it 
is  that  we  like.  We  do  not  mean  a  freedom  that  can  be  enjoyed  by 
one  man  at  a  cost  of  a  loss  of  freedom  to  others.  We  mean  rather 
a  positive  power  of  doing  or  enjoying  something  that  is  worth  doing 
or  enjoying,  and  that,  too,  something  that  we  do  or  enjoy  in  com- 
mon with  others.  We  mean  by  it  a  power  which  each  man  exercises 
through  the  help  or  security  given  him  by  his  fellow-men,  and  which 
in  turn  he  helps  to  secure  for  them.  When  we  measure  the  prog- 
ress of  a  society  by  its  growth  in  freedom,  we  measure  it  by  the 
increasing  development  on  the  whole  of  those  powers  of  contributing 
to  social  good  with  which  we  believe  the  members  of  the  society  to 
be  endowed;  in  short,  by  the  greater  power  on  the  part  of  the  citi- 
zens to  make  the  most  and  best  of  themselves. 

Thus,  though  there  can  be  no  freedom  among  men  who  act  under 
compulsion,  yet  the  mere  removal  of  compulsion  is  in  itself  no  con- 
tribution to  true  freedom.  In  one  sense  no  man  is  so  well  able  to 
do  what  he  likes  as  the  wandering  savage.  He  has  no  master.  There 
is  no  one  to  say  him  nay.  Yet  we  do  not  count  him  really  free, 
because  the  freedom  of  savagery  is  not  strength,  but  weakness.  The 
actual  powers  of  the  noblest  savage  do  not  compare  with  those  of 
the  humblest  citizen  of  a  law-abiding  state.  He  is  not  the  slave 
of  man,  but  he  is  the  slave  of  nature.  Of  compulsion  by  natural 
necessity  he  has  plenty  of  experience,  though  of  restraint  by  society 
none  at  all.  Nor  can  he  deliver  himself  from  that  compulsion 
except  by  submitting  to  this  restraint.  So  to  submit  is  the  first  step 
in  true  freedom,  because  the  first  step  in  the  exercise  of  the  faculties 
with  which  man  is  endowed. 

But  we  rightly  refuse  to  recognize  the  highest  development  on 
the  part  of  an  exceptional  individual  or  exceptional  class,  as  an 
advance  toward  the  true  freedom  of  man,  if  it  is  founded  on  a 
refusal  of  the  same  opportunity  to  other  men.  The  powers  of  the 
human  mind  have  probably  never  attained  such  force  and  keenness 
as  among  the  small  groups  of  men  who  possessed  civil  privileges 

•Adapted  from  the  "Lecture  on  Liberal  Legislation  and  Freedom  of  Con- 
tract," Works.  Ill,  Z70-Z73'    Edited  by  R.  L.  Nettleship  (1880). 


670  CURRENT  ECONOMIC  PROBLEMS 

in  the  small  republics  of  antiquity.  But  the  civilization  and  free- 
dom of  the  ancient  world  were  short-lived  because  they  were  partial 
and  exceptional.  If  the  ideal  of  true  freedom  is  the  maximum  of 
power  for  all  the  members  of  human  society  to  make  the  best  of 
themselves,  we  are  right  in  ranking  modern  society,  with  all  its  con- 
fusion and  ignorant  license  and  waste  of  effort,  above  the  most 
splendid  of  ancient  republics. 

If  I  have  given  a  true  account  of  that  freedom  which  forms 
the  goal  of  social  effort,  we  shall  see  that  freedom  of  contract  is 
valuable  only  as  a  means  to  an  end.  That  end  is  what  I  call  free- 
dom in  the  positive  sense,  the  liberation  of  the  powers  of  all  men 
equally  for  contributions  to  a  common  good. 

327.     Contract  and  Co-operation^° 

BY   H^NRY   SIDGWICK 

Withdraw  contract — suppose  that  no  one  can  count  upon  anyone 
else  fulfilling  an  engagement — and  the  members  of  a  human  com- 
munity are  atoms  that  cannot  effectively  combine;  the  complex 
co-operation  and  division  of  employments  that  are  the  essential 
characteristics  of  modern  industry  cannot  be  introduced  among  such 
beings.  Suppose  contracts  freely  made  and  effectively  sanctioned, 
and  the  most  elaborate  social  organization  becomes  possible,  at  least 
in  a  society  of  such  human  beings  as  the  individualistic  theory  con- 
templates— ^gifted  with  mature  reason  and  guided  by  enlightened 
self-interest.  Of  such  beings  it  is  plausible  to  say  that,  when  once 
their  respective  relations  to  the  surrounding  material  world  have 
been  determined  so  as  to  prevent  mutual  encroachment  and  secure 
to  each  the  fruits  of  his  industry,  the  remainder  of  their  positive 
mutual  rights  and  obligations  ought  to  depend  entirely  on  that 
coincidence  of  their  free  choices,  which  we  call  contract.  The  doc- 
trine of  contract  I  do  not  examine;  I  only  refer  to  it  to  show  the 
far-reaching  importance  of  the  notion  of  contract  in  the  individual- 
istic view  of  the  organization  of  society. 

328.     Contract  and  Personal  Responsibility^^ 

BY  ARTHUR  TWINING  HADLEY 

A  statement  of  the  history  of  modern  freedom,  and  one  that 
ought  to  command  assent  in  the  twentieth  century,  is  that  it  repre- 
sents a  passage  from  a  system  of  obligations  imposed  by  the  com- 

^'' Adapted  from  The  Elements  of  Politics,  78-79  (1887). 

** Adapted  from  The  Relations  betzveen  Freedom  and  Responsibility  in 
the  Evolution  of  Democratic  Government,  74-83.  Copyright  by  Yale  Univer- 
sity Press  (1903). 


SOCIAL-LEGAL  INSTITUTIONS  671 

munity  to  a  system  of  self-imposed  obligations.  Duty,  in  the  early 
stages  of  society,  is  enforced  by  lynch  law.  In  the  later  stages  it  is 
enforced  by  the  individual  conscience.  It  is  not  that  the  obliga- 
tions recognized  are  narrower  or  less  exacting  in  the  latter  case  than 
in  the  former.  They  tend  to  become  wider  and  more  exacting.  But 
the  method  of  enforcement  allows  the  individual  to  get  at  things  in 
his  own  way.  We  have  passed  from  a  system  of  status,  where  each 
man  was  bom  into  a  set  of  legal  rules  and  duties  imposed  upon  him 
for  all  time,  to  a  system  of  contract,  where  each  man's  rights  and 
duties  are  largely  those  which  he  has  made  for  himself.  This  change 
has  not  enabled  man  to  relieve  himself  of  obligations  to  his  fellow- 
men.  It  has  allowed  these  obligations  to  take  forms  suited  to  the 
varied  powers  of  the  individual  and  the  varied  needs  of  society. 
We  can  trace  at  least  some  of  the  stages  in  this  process  of  evolution. 

The  system  of  caste,  or  status,  is  a  survival  of  the  old  tribal 
organization,  where  law  and  morals  were  undistinguished;  where 
social  arrangements  existed  by  the  authority  of  the  gods ;  and  where 
any  attempt  to  disturb  them  was  an  act  of  sacrilege.  In  course  of 
time,  however,  there  came  about  an  alteration  in  the  character  of  the 
legal  penalties.  Where  one  man  had  wronged  another  uninten- 
tionally, it  became  possible  not  only  to  inflict  punishment,  but  to 
exact  compensation.  Instead  of  the  fine  which  was  exacted  for 
an  offense  against  public  order,  the  community  could  compel  the 
payment  of  damages  to  make  good  the  loss  to  the  person  injured. 
Even  where  the  wrong  was  intentional  the  idea  of  compensation 
could  enter  into  the  penalty.  When  once  the  legal  authorities  grasped 
this  possibility  of  using  a  civil  remedy,  instead  of  a  criminal  one,  it 
became  possible  to  allow  to  any  man  who  could  pay  substantial  dam- 
ages a  degree  of  personal  liberty  which  was  not  possible  under  a 
system  where  every  infraction  of  others'  rights  must  be  treated  as 
a  crime  and  visited  by  criminal  penalties. 

From  the  development  of  civil  damages  it  was  but  a  short  step 
to  the  system  of  contracts.  The  essential  idea  of  a  contract  is  that 
one  or  both  parties  agree  to  perform  a  certain  service  at  a  future 
time.  The  obligation  which  a  man  assumes  in  a  contract  is  volun- 
tary until  he  has  made  the  agreement.  After  that  society  will  compel 
him  to  pay  damages  for  its  breach,  just  as  it  would  compel  him  to 
pay  damages  for  the  breach  of  any  of  the  other  rights  of  his  fellow 
citizens.  It  is  therefore,  in  its  very  essence,  a  combination  of  free- 
dom and  responsibility.  It  is  a  means  which  the  community  can 
adopt  for  getting  work  done  by  the  voluntary  assumption  of  obliga- 
tions on  the  part  of  its  members.  These  obligations  they  can  be 
compelled  to  perform  or  to  furnish  compensation  to  the  other  party. 


672  CURRENT  ECONOMIC  PROBLEMS 

Among  the  many  brilliant  contributions  of  the  Roman  lawyers  to 
the  progress  of  civiiization,  there  was  probably  none  so  far-reaching 
as  their  development  of  the  theory  of  contract.  For,  wherever  this 
theory  was  applied,  it  taught  people  that  the  exercise  of  freedom 
involved  the  assumption  of  responsibility,  and  could  safely  be  com- 
bined with  it. 

The  lesson  was  not  easy  to  learn,  and  the  Roman  lawyers  did 
not  succeed  in  teaching  it  to  the  civilized  world  for  all  time.  The 
irruption  of  the  barbarians  into  Europe  brought  with  it,  under  the 
feudal  system,  a  nearly  complete  return  to  the  old  theory  of  a  status. 
But  with  the  close  of  the  feudal  period  the  ideas  of  the  Roman  law 
were  taken  up  and  widely  expanded.  The  power  of  making  a  con- 
tract, under  the  old  Roman  law,  had  been  practically  limited  to  the 
few  men  who  could  furnish  security  for  the  performance  of  their 
obligations.  It  belonged  chiefly  to  the  minority  of  freemen  who 
enjoyed  the  benefits  of  slavery.  At  the  close  of  the  Middle  Ages, 
however,  the  reintroduction  of  the  idea  of  contractual  obligation  as 
a  basis  for  social  order  was  accompanied  by  a  system  of  emancipa- 
tion which  gave  the  laborer  a  certain  amount  of  property  right  in 
the  product  of  his  toil.  The  substitution  of  industrial  for  military 
tenure  put  a  much  larger  number  of  people  in  a  position  to  furnish 
security.  It  enabled  the  people  as  a  whole,  instead  of  the  privileged 
few,  to  enjoy  the  system  of  education  in  responsibility  which  marks 
the  growth  of  contract  law. 

For  our  modern  law  of  contract  is  a  most  valuable  system  of 
moral  education,  operating  alike  upon  lawyers  and  upon  laymen, 
and  enabling  us  to  make  progress  both  in  our  judicial  ethics  and  in 
our  general  tone  of  public  morality.  The  whole  English  commercial 
law  of  the  seventeenth  and  eighteenth  centuries,  with  its  distinctions, 
sometimes  fine  drawn  but  always  well  drawn  in  matters  like  agency 
or  warranty,  competence  or  negligence,  involves  a  systematic  enforce- 
ment of  responsibility  under  the  forms  of  freedom.  If  we  wish  to 
see  what  this  legal  development  has  accomplished  in  the  way  of 
introducing  responsibility,  we  have  only  to  contrast  our  standards 
of  practice  and  ethics  in  those  lines  where  commercial  law  has  been 
developing  for  centuries  with  those  where  its  application  is  compara- 
tively new.  If  I  sell  a  cow  on  the  basis  of  certain  representations, 
which  prove  to  be  false,  the  law  holds  me  to  an  implied  contract  of 
warranty,  even  if  I  have  explicitly  disclaimed  any  intention  to 
warrant  the  animal.  If  I  sell  a  railroad  under  similar  circumstances 
the  law  offers  the  sufferer  no  corresponding  remedy ;  and  no  small 
section  of  the  public  applauds  the  seller  for  the  shrewdness  which 
he  has  displayed  in  the  transaction.    If  I  use  an  individual  position 


SOCIAL-LEGAL  INSTITUTIONS  673 

of  trust  to  enrich  myself  at  the  expense  of  others,  the  law  will 
compel  me  to  make  restitution,  even  where  criminal  intent  was 
absent.  But  if  I  profit  by  similar  errors  in  the  management  of  a 
corporate  trust,  the  difficulty  of  bringing  the  responsibility  home  is 
great  indeed. 

It  is  the  ideal  of  a  free  community  to  give  liberty  wherever 
people  are  sufficiently  advanced  to  use  it  in  ways  which  shall  benefit 
the  public,  instead  of  ways  which  will  promote  their  own  pleasure 
at  the  public  expense.  And  it  has  been  the  practice  of  the  most 
successful  communities  to  go  farther  than  this,  and  give  freedom 
somewhat  in  advance  of  this  ethical  development.  Liberty  is  directly 
advantageous  wherever  the  ethical  development  of  the  community 
fits  people  for  its  use;  it  is  likely  to  prove  indirectly  advantageous 
wherever  there  is  a  fair  prospect  that  they  can  be  taught  to  improve 
their  ethical  standards  in  the  immediate  future. 

329,     Labor  and  Freedom  of  Contract^^ 
What  "Freedom  of  Contract"  Has  Meant  to  Labor 

1.  Denial  of  eight-hour  law  for  women  in  Illinois. 

2.  Denial  of  eight-hour  law  for  city  labor  or  for  mechanics 
and  ordinary  laborers. 

3.  Denial  of  ten-hour  law  for  bakers. 

4.  Inability  to  prohibit  tenement  labor. 

5.  Inability  to  prevent  by  law  employer  from  requiring  em- 
ployee as  condition  of  securing  work,  to  assume  all  risk  from  injury 
while  at  work. 

6.  Inability  to  prohibit  employer  selling  goods  to  employees  at 
greater  profit  than  to  non-employees. 

7.  Inability  to  prohibit  mine  owners  screening  coal  which  is 
mined  by  weight  before  crediting  same  to  employees  as  basis  of 
wages. 

8.  Inability  to  legislate  against  employer  using  coercion  to  pre- 
vent employee  becoming  a  member  of  a  labor  union. 

9.  Inability  to  restrict  employer  in  making  deductions  from 
wages  of  employees. 

10.  Inability  to  compel  by  law  payment  of  wages  at  regular 
inten^als. 

11.  Inability  to  provide  by  law  that  laborers  on  public  works 
shall  be  paid  prevailing  rate  of  wages. 

12.  Inability  to  compel  by  law  payment  of  extra  compensation 
for  overtime. 

** Adapted  from  a  bulletin  used  at  the  Chicago  Industrial  Exhibit  in  1906. 


674  CURRENT  ECONOMIC  PROBLEMS 

13.  Inability  to  prevent  by  law  employer  from  holding  back 
part  of  wages. 

14.  Inability  to  compel  payment  of  wages  in  cash ;  so  that  em- 
ployer may  pay  in  truck  or  scrip  not  redeemable  in  lawful  money. 

15.  Inability  to  forbid  alien  labor  on  municipal  contracts. 

16.  Inability  to  secure  by  law  union  label  on  city  printing. 

330.     Static  Assumptions  of  Contractual  Freedom^^ 

BY  ROSCOE  POUND 

"The  right  of  a  person  to  sell  his  labor,"  says  Mr.  Justice  Har- 
lan, "upon  such  terms  as  he  deems  proper  is,  in  its  essence,  the  same 
as  the  right  of  the  purchaser  of  labor  to  prescribe  the  conditions 
upon  which  he  will  accept  such  labor  from  the  person  offering  to 
sell  it.  So  the  right  of  the  employe  to  quit  the  service  of  the  em- 
ployer, for  whatever  reason,  is  the  same  as  the  right  of  the  employer, 
for  whatever  reason,  to  dispense  with  the  services  of  such  employe. 
In  all  such  particulars  the  employer  and  the  employe  have  equality 
of  right,  and  any  legislation  that  disturbs  that  right  is  an  arbitrary 
interference  with  the  liberty  of  contract,  which  no  government  can 
legally  justify  in  a  free  land."^*  With  this  positive  declaration  of  a 
lawyer,  the  culmination  of  a  line  of  cases  now  nearly  twenty-five 
years  old,  a  statement  which  a  recent  writer  on  the  science  of  juris- 
prudence has  deemed  so  fundamental  as  to  deserve  quotation  and 
exposition  at  an  unusual  length,  let  us  compare  the  equally  positive 
statement  of  a  sociologist:  "Much  of  the  discussion  about  'equal 
rights'  is  utterly  hollow.  All  this  ado  about  the  system  of  contract 
is  surcharged  with  fallacy." 

To  everyone  acquainted  with  the  facts  at  first  hand  the  latter 
statement  goes  without  saying.  Why,  then,  do  the  courts  persist 
in  the  fallacy?  Why  do  so  many  of  them  force  upon  legislation  an 
academic  theory  of  equality  in  the  face  of  practical  inequality? 
Why  do  we  find  a  great  and  learned  court  in  1908  taking  a  long 
step  into  the  past  of  dealing  with  the  relations  between  employer  and 
employe  in  railway  transportation,  as  if  the  parties  were  individ- 
uals, as  if  they  were  farmers  haggling  over  the  sale  of  a  horse? 
Why  is  the  legal  conception  of  the  relation  of  employer  and  employee 
so  at  variance  with  the  common  knowledge  of  mankind?  Surely 
the  cause  of  such  doctrine  must  lie  deep.  Let  us  enquire  then  what 
these  causes  are  and  how  they  have  operated  to  bring  about  the 
present  state  of  the  law  of  freedom  of  contract. 

"Adapted  from  "Liberty  of  Contract,"  in  18  Yale  Law  Journal,  454-487 
(1909). 

^* Adair  V.  U.  S.,  208  U.  S.  161. 


SOCIAL-LEGAL  INSTITUTIONS  675 

There  is  no  doubt  that  the  theory  of  "natural  rights"  is  at  the 
basis  of  modern  conceptions  of  freedom  of  contract.  This  began 
as  a  doctrine  of  political  economy,  as  a  phase  of  Adam  Smith's  doc- 
trine which  we  commonly  call  laissez  faire.  It  was  propounded  as 
a  utilitarian  principle  of  politics  and  legislation  by  Mill.  Spencer 
derived  it  from  his  formula  of  justice.  In  this  way  it  became  a  chief 
article  in  the  creed  of  those  who  sought  to  minimize  the  functions 
of  the  state,  to  insist  that  the  most  important  of  its  functions  was 
to  enforce  by  law  the  obligations  created  by  contract.  This  theory 
has  shown  itself  present  in  both  legislation  and  judicial  decisions. 
As  a  consequence  the  doctrine  of  liberty  of  contract  is  bound  up  in 
the  decisions  of  our  courts  with  a  narrow  view  as  to  what  consti- 
tutes special  or  class  legislation,  that  greatly  limits  effective  law 
making.  For  one  thing  there  is  the  doctrine  that  apart  from  consti- 
tutional restrictions  there  are  individual  rights  resting  on  a  natural 
basis,  to  which  the  courts  must  give  effect,  beyond  the  control  of 
the  State.  "In  the  judicial  discussions  of  liberty  of  contract  this  idea 
has  been  very  prominent.  One  court  reminds  us  that  natural  per- 
sons do  not  derive  their  right  to  contract  from  the  law.^"  Another 
court  in  passing  adversely  upon  legislation  against  company  stores, 
says  any  classification  is  arbitrary  and  unconstitutional  unless  it  pro- 
ceeds on  "the  natural  capacity  of  persons  to  contract."^'  Another,  in 
passing  on  a  similar  statute,  denies  that  contractual  capacity  can  be 
restricted  except  for  physical  or  mental  disabilities.^'  Another  holds 
that  the  legislature  cannot  take  notice  of  the  de  facto  subjection  of 
one  class  of  persons  to  another  in  making  contracts  of  employment 
in  certain  industries,  but  must  be  governed  by  the  theoretical  jural 
equality.** 

Not  only,  however,  is  natural  law  the  fundamental  assumption 
of  our  law  and  legal-  philosophy,  but  we  must  not  forget  that  it  is 
the  theory  of  our  bills  of  rights.  Not  unnaturally  the  courts  have 
clung  to  it  as  being  the  orthodox  theory  of  constitutions.  But  the 
fact  that  the  framers  held  that  theory  by  no  means  demonstrates 
that  they  intended  to  impose  the  theory  on  us  for  all  time.  They 
laid  down  principles,  not  rules,  and  rules  can  only  be  illustrations  of 
principles  so  long  as  the  facts  and  opinions  remain  what  they  were 
at  the  time  when  the  rules  were  announced.  Forgetfulness  of  this 
latter  fact  and  an  intense  zeal  for  natural  rights  theory  has  led  to  a 
desire  to  extend  this  freedom  as  far  as  possible  and  to  limit  as  much 
as  possible  whatever  would  tend  to  interfere  with  this,  such  as  the 
number  and  kinds  of  incapacities  which  would  justify  a  restraint  of 

"58  Ark.  407.  "33  W.  Va.  188. 

"115  Mo.  307.  "61  Kas.  140. 


676  CURRENT  ECONOMIC  PROBLEMS 

this  liberty.  The  decisions  of  the  courts  plainly  reveal  this.  They 
agree  that  the  term  "liberty"  is  broader  than  Coke's  use  of  it,  that 
the  fact  that  Coke  confined  it  to  freedom  of  physical  motion  and 
locomotion  does  not  exclude  a  broader  interpretation  today.  Yet 
the  same  courts  that  recognize  that  liberty  must  include  more  today 
than  it  did  as  used  in  Coke's  Second  Institute,  lay  it  down  that  the 
incapacities  are  to  remain  what  they  were  at  the  common  law,  that 
new  incapacities  of  fact,  arising  out  of  present  industrial  situations, 
may  not  be  recognized  by  legislation.  Restraints  upon  that  freedom 
must  find  some  justification  in  the  existence  of  like  limitations  recog- 
nized at  the  old  common  law. 

This  appears  perhaps  no  more  clearly  than  in  the  efiforts  of  the 
courts  to  reconcile  the  existence  of  usury  laws  with  their  notion  of 
liberty  of  contract.  As  was  said  in  113  Pa.  St.  427,  "The  right  to 
regulate  the  rate  of  interest  existed  at  the  time  the  constitution  was 
adopted,  and  cannot,  therefore,  be  considered  either  an  abridgment 
or  restraint  upon  the  rights  of  the  citizen,  guaranteed  by  the  con- 
stitution. The  power  to  pass  usury  laws  exists  by  immemorial  us- 
age ;  but  such  is  not  the  case  with  such  acts  as  we  are  considering." 
That  narrow  assumptions  underlie  conceptions  of  contractual  cap- 
acities also  receives  exemplification  in  connection  with  judicial  dis- 
cussions of  usury  laws.  For  instance  in  Prorer  vs.  People,^^  the 
court  said,  "Usury  laws  proceed  upon  the  theory  that  the  lender 
and  the  borrower  of  money  do  not  occupy  toward  each  other  the 
same  relations  of  equality  that  parties  do  in  contracting  with  each 
other  in  regard  to  the  loan  or  sale  of  other  kinds  of  property,  and 
that  the  borrower's  necessities  deprive  him  of  freedom  in  contract- 
ing and  place  him  at  the  mercy  of  the  lender,  and  such  laws  may 
be  found  on  the  statute  books  of  all  civilized  nations  of  the  world, 
both  ancient  and  modem."  It  does  not  even  s«em  to  have  occurred 
to  Justice  Scholfield  that  the  necessities  of  the  miner  or  factory 
employee  might  impair  his  freedom  of  contract  as  well.  And 
instances  might  be  multiplied,  showing  the  purely  individualistic 
character  of  all  natural  law  theories,  and  the  legal  decisions  based 
upon  them. 

331.     Contractual  Rights — Legal  and  ReaP° 

BY  THORSTEIIN  B.  VEBLEN 

The  movement  of  opinion  on  natural-rights  grounds  converged 
to  an  insistence  on  the  system  of  natufal  liberty,  so-called.    But  this 

"141  111.  171. 

'"Adapted  from  The  Theory  of  Business  Enterprise,  271-278,  Copy- 
right by  Charles  Scribner's  Sons  (1904). 


SOCIAL-LEGAL  INSTITUTIONS  677 

insistence  on  natural  liberty  did  not  contemplate  the  abrogation  of 
all  conventional  prescription.  "The  simple  and  obvious  system  of 
natural  liberty"  meant  freedom  from  restraint  on  any  other  pre- 
scriptive ground  than  that  afforded  by  the  rights  of  ownership.  In 
its  economic  bearing  the  system  of  natural  liberty  meant  a  system 
of  free  pecuniary  contract.  "Liberty  does  not  mean  license ;"  which 
in  economic  terms  would  be  transcribed,  "The  natural  freedom  of 
the  individual  must  not  traverse  the  prescriptive  rights  of  property." 
Property  rights  being  included  among  natural  rights,  they  had  the 
indefeasibility  which  attaches  to  natural  rights.  Natural  liberty 
prescribes  freedom  to  buy  and  sell,  limited  only  by  the  equal  free- 
dom of  others  to  buy  and  sell ;  with  the  obvious  corollary  that  there 
must  be  no  interference  with  others'  buying  and  selling,  except  by 
means  of  buying  and  selling. 

Presently,  when  occasion  arose  in  America,  the  metaphysics  of 
natural  liberty  was  embodied  in  set  form  in  constitutional  enact- 
ments. It  is,  therefore,  involved  in  a  more  authentic  form  and  with 
more  incisive  force  in  the  legal  structure  of  this  community  than 
in  that  of  any  other.  Freedom  of  contract  is  the  fundamental  tenet 
of  the  legal  creed,  so  to  speak,  inviolable  and  inalienable ;  and  within 
the  province  of  law  and  equity  no  one  has  competence  to  penetrate 
behind  this  first  premise  or  to  question  the  merits  of  the  natural- 
rights  metaphysics  on  which  it  rests.  The  only  principle  which  may 
contest  its  primacy  in  civil  matters  is  the  vague  "general  welfare" 
clause,  and  even  this  can  effectively  contest  its  claims  only  under 
exceptional  circumstances.  Under  the  application  of  any  general 
welfare  clause  the  presumption  is,  and  always  must  be,  that  the  prin- 
ciple of  free  contract  be  left  intact  so  far  as  the  circumstances  will 
permit.  The  citizen  may  not  be  deprived  of  life,  liberty,  or  property 
without  due  process  of  law,  and  the  due  process  proceeds  on  the 
premise  that  property  rights  are  inviolable.  In  its  bearing  upon  eco- 
nomic relations  between  individuals  this  comes  to  mean,  in  effect,  not 
only  that  one  individual  or  group  of  individuals  may  not  legally 
bring  any  other  than  pecuniary  pressure  to  bear  upon  another  in- 
dividual or  group,  but  also  that  pecuniary  pressure  cannot  be  barred. 

Now,  through  gradual  change  of  the  economic  conditions,  this 
conventional  principle  of  unmitigated  and  inalienable  freedom  of 
contract  began  to  grow  obsolete  from  the  moment  when  it  was  fairly 
installed ;  obsolescent,  of  course,  not  in  point  of  law,  but  in  point 
of  fact.  The  machine  process  has  invaded  the  field.  The  standard- 
ization and  the  constraint  of  the  system  of  machine  industry  differs 
from  what  went  before  it  in  that  it  has  no  conventional  recognition, 
no  metaphysical  authentication.    The  machine  process  has  not  itself 


678  CURRENT  ECONOMIC  PROBLEMS 

become  a  legal  fact.    Therefore  it  neither  can  or  need  be  taken  ac- 
count of  by  the  legal  mind.    It  does  not  exist  de  jure  but  de  facto. 

The  "natural,"  conventional  freedom  of  contract  is  sacred  and  in- 
violable. The  de  facto  freedom  of  choice  is  a  matter  about  which 
the  law  and  the  courts  are  not  competent  to  enquire.  By  force  of 
the  concatenation  of  industrial  processes  and  the  dependence  of 
men's  comforts  or  subsistence  upon  the  orderly  working  of  these 
processes,  the  exercise  of  the  rights  of  ownership  in  the  interests  of 
business  may  traverse  the  de  facto  necessities  of  a  group  or  class ;  it 
may  even  traverse  the  needs  of  the  community  at  large,  for  ex- 
ample, in  the  conceivable  case  of  an  advisedly  instituted  coal  famine ; 
but  since  the  necessities  or  comforts  of  livelihood  cannot  be  formu- 
lated in  terms  of  the  natural  freedom  of  contract,  they  can,  in  the 
nature  of  the  case,  give  rise  to  no  cognizable  grievance  and  find  no 
legal  remedy. 

D.     THE  COURTS  AND  LABOR 
332.     Limitation  of  the  Working  Day  for  Women 

a)     The  Supremacy  of  Freedom  of  Contract^^ 

Does  the  provision  in  question  restrict  the  right  to  contract? 
The  words  "no  female  shall  be  employed"  import  action  on  the  part 
of  two  persons.  There  must  be  a  person  who  does  the  act  of  em- 
ploying and  a  person  who  consents  to  the  act  of  being  employed. 
The  prohibition  of  the  statute  is  two  fold:  first,  that  no  manufac- 
turer or  proprietor  of  a  workshop  shall  employ  any  female  therein 
more  than  eight  hours  in  one  day ;  and,  second,  that  no  female  shall 
consent  to  be  so  employed.  It  thus  prohibits  employer  and  employee 
from  uniting  their  minds  upon  any  longer  service  during  one  day 
than  eight  hours.  They  are  prohibited,  the  one  from  contracting 
to  employ,  and  the  other  from  contracting  to  be  employed,  other- 
wise than  as  directed.  Section  2  of  Article  2  of  the  constitution  of 
Illinois  provides. that  "no  person  shall  be  deprived  of  life,  liberty, 
or  property  without  due  process  of  law."  The  privilege  of  contract- 
ing is  both  a  liberty  and  a  property  right.  Liberty  includes  the 
right  to  acquire  property,  and  that  means  the  right  to  make  and  en- 
force contracts.  The  legislature  has  no  right  to  deprive  one  class 
of  persons  of  privileges  allowed  to  other  persons  under  like  con- 
ditions.   Women  employed  by  manufacturers  are  forbidden  to  make 

'^Ritchie  v.  People,  115  111.  98  (1893).  This  is  an  excerpt  from  the 
opinion  of  the  state  court  declaring  unconstitutional  a  law  providing  that 
"no  female  shall  be  employed  in  any  factory  or  workshop  more  than  eiglit 
hours  in  any  one  day,  or  forty-eight  hours  in  any  one  week." 


SOCIAL-LEGAL  INSTITUTIONS  679 

contracts  to  labor  longer  than  eight  hours  in  a  day,  while  women 
employed  as  saleswomen,  bookkeepers,  stenographers,  or  other 
occupations  are  at  liberty  to  contract  for  as  many  hours  of  labor  a 
day  as  they  choose.  The  manner  in  which  this  section  discriminates 
against  one  class  of  employers  and  employees,  and  in  favor  of  all 
others,  places  it  in  opposition  to  the  constitutional  guarantees  here- 
inbefore discussed,  and  so  renders  it  invalid. 

But  aside  from  its  partial  and  discriminating  character,  this 
enactment  is  a  purely  arbitrary  restriction  upon  the  fundamental 
rights  of  the  citizen  to  control  his  or  her  time  and  facilities.  It 
substitutes  the  judgment  of  the  legislature  for  the  judgment  of  the 
employer  and  employee  in  a  matter  about  which  they  are  competent 
to  agree  with  each  other.  Where  the  legislature  thus  undertakes  to 
impose  an  unreasonable  and  unnecessary  burden  upon  any  one  citizen 
or  class  of  citizens  it  transcends  the  authority  intrusted  to  it  by  the 
constitution. 

h)     The  Supremacy  of  the  Police  Power^^ 

The  members  of  the  legislature  are  elected  from  every  portion 
of  the  state  and  come  from  every  walk  in  life.  They  know  from 
experience  what  laws  are  necessary  to  be  enacted  for  the  welfare 
of  the  communities  in  which  they  reside.  They  determined  that  the 
law  in  question  was  necessary  for  the  public  good,  and  the  protection 
of  the  health  and  well-being  of  the  women  engaged  in  labor  in  the 
establishments  mentioned  in  the  act.  That  question  was  one  ex- 
clusively within  their  power  and  jurisdiction.  Women  and  children 
have  always  to  a  certain  extent  been  wards  of  the  state.  Women  in 
recent  years  have  been  partly  emancipated  from  their  common  law 
disabilities.  They  now  have  a  limited  right  of  contract.  They  may 
own  property  in  their  own  right,  and  engage  in  business  on  their 
own  account.  But  they  have  no  voice  in  the  enactment  of  laws  by 
which  they  are  governed.  Certain  kinds  of  work  which  may  be 
performed  by  men  without  injury  to  their  health  would  wreck  the 
constitutions  and  destroy  the  health  of  women.  The  state  must  be 
accorded  the  right  to  guard  and  protect  women  as  a  class  against 
such  a  condition;  and  the  law  in  question  to  that  extent  conserves 
the  public  health  and  welfare.  On  the  question  of  the  right  of  con- 
tract, we  may  well  declare  a  law  unconstitutional  which  abridges 
the  right  of  adult  males  to  contract  with  each  other.    The  employer 

"IVenham  v.  State,  65  Neb.  394  (1902).  This  is  an  excerpt  from  an 
opinion  of  the  court  declaring  constitutional  a  law  providing  "that  no  female 
shall  be  employed  in  any  manufacturing,  mechanical,  or  mercantile  establish- 
ment, hotel,  or  restaurant  in  this  state  more  than  sixty  hours  during  any  one 
week,  and  that  ten  hours  shall  constitute  a  day's  labor." 


68o  CURRENT  ECONOMIC  PROBLEMS 

and  the  laborer  are  practically  on  an  equal  footing,  but  this  does 
not  apply  to  women  and  children.  Their  field  of  remunerative 
labor  is  restricted.  Competition  for  places  therein  is  necessarily 
great.  The  employer  who  seeks  to  obtain  the  most  hours  of  labor 
for  the  least  wages  has  such  an  advantage  over  them  that  the  wisdom 
of  the  law  for  their  protection  cannot  well  be  questioned.  If  the 
act  is  the  result  of  a  fair,  reasonable  exercise  of  the  police  power  of 
the  state,  it  should  be  upheld.  We  are  unable  to  find  a  case  where 
the  courts  have  laid  down  any  rigid  rule  for  the  exercise  of  police 
power.  There  is  little  reason  under  our  system  of  government,  for 
placing  a  narrow  interpretation  on  this  power,  or  restricting  its  scope 
so  as  to  hamper  the  legislature  in  dealing  with  new  circumstances 
as  they  arise. 

c)     Maternity  and  State,  Regulations^ 

That  woman's  physical  structure  and  the  performance  of  ma- 
ternal functions  place  her  at  a  disadvantage  in  the  struggle  for 
subsistence  is  obvious.  By  the  abundant  testimony  of  the  medical 
fraternity  continuance  for  a  long  time  on  her  feet  at  work  and  re- 
peating this  from  day  to  day  tends  to  injurious  effects  upon  the 
body;  and  as  healthy  mothers  are  essential  to  a  vigorous  offspring, 
the  physical  well-being  of  woman  becomes  an  object  of  public  in- 
terest, and  care,  in  order  to  preserve  the  strength  and  vigor  of  the 
race. 

333.     Reciprocal  Nature  of  Employer's  and  Employee's  Rights^* 

1.  The  defendants  acted  within  their  right  when  they  went  out 
on  a  strike.  Whether  with  good  cause,  or  without  any  cause  or  rea- 
son, they  had  the  right  to  quit  work,  and  their  reasons  for  quitting 
work  were  reasons  they  need  not  give  to  anyone.  And  that  they 
all  went  out  in  a  body,  by  agreement  or  preconcerted  arrangement, 
does  not  militate  against  them  or  affect  this  case  in  any  way. 

2.  Such  rights  are  reciprocal,  and  the  company  had  the  right  to 
discharge  any  or  all  of  the  defendants,  with  or  without  cause,  and 
it  cannot  be  inquired  into  as  to  what  the  cause  was. 

3.  It  is  immaterial  whether  the  defendants  are  not  now  in  the 
service  of  the  company  because  of  a  strike  or  a  lockout. 

4.  The  defendants  have  the  right  to  combine  and  work  together 
in  whatsoever  way  they  believe  will  increase  their  earnings,  shorten 

"Muller  V.  Oregon,  208  U.  S.  412  (1907).  It  will  be  noted  that  this  is 
from  a  decision  of  the  United  States  Supreme  Court. 

** Adapted  from  the  opinion  of  the  court  iji  Union  Pacific  Railway  Co.  v. 
Ruef,   120   Fed.    102    (1903). 


SOCIAL-LEGAL  INSTITUTIONS  68 1 

their  hours,  lessen  their  labor,  or  better  their  condition,  and  it  is  for 
them,  and  them  only,  to  say  whether  they  will  work  by  the  day  or 
by  piecework.  All  such  is  part  of  their  liberty.  And  they  can  so 
conclude  as  individuals,  or  as  organizations,  or  as  unions. 

5.  And  the  right  is  also  reciprocal.  The  railroad  company  has 
the  right  to  have  its  work  done  by  the  premium  or  piece  system, 
without  molestation  or  interference  by  defendants  or  others.  This 
is  liberty  for  the  company,  and  the  company  alone  has  the  right  to 
determine  as  to  that  matter. 

6.  When  the  defendants  went  on  a  strike,  or  when  put  out  on 
a  lockout,  their  relations  with  the  company  were  at  an  end:  they 
were  no  longer  employees  of  the  company;  and  the  places  they  once 
occupied  in  the  shops  were  no  longer  their  places,  and  never  can 
be  again,  excepting  by  mutual  agreement  between  the  defendants 
and  the  company. 

7.  No  one  of  the  defendants  can  be  compelled  by  any  law,  or 
by  any  order  of  any  court,  to  work  again  for  the  company  on  any 
terms  or  under  any  conditions. 

8.  The  company  cannot  be  compelled  to  employ  again  any  of 
the  defendants,  or  any  other  persons,  by  any  law,  or  by  any  order 
of  any  court,  or  on  any  terms,  or  on  any  conditions. 

9.  Each,  all,  and  every  of  the  foregoing  matters  between  the 
company  and  the  defendants  are  precisely  the  same,  whether  applied 
to  the  company  or  to  the  defendants. 

10.  The  company  has  the  right  to  employ  others  to  take  the 
places  once  filled  by  defendants ;  and  in  employing  others  the  defend- 
ants are  not  to  be  consulted,  and  it  is  of  no  lawful  concern  to  them, 
and  they  can  make  no  lawful  complaint  by  reason  thereof.  And  it 
makes  no  difference  whether  such  new  employees  are  citizens  of 
Omaha  or  of  some  other  city  or  state. 

II.  Defendants  have  the  right  to  argue  or  discuss  with  the 
new  employees  the  question  whether  the  new  employees  should 
work  for  the  company.  They  have  the  right  to  persuade  them  if 
they  can.  But  in  presenting  the  matter,  they  have  no  right  to  use 
force  or  violence.  They  have  no  right  to  terrorize  or  intimidate 
the  new  employees.  The  new  employees  have  the  right  to  come  and 
go  as  they  please,  without  fear  or  molestation,  and  without  being 
compelled  to  discuss  this  or  any  other  question,  and  without  being 
guarded  or  picketed,  and  persistent  and  continued  and  objectionable 
persuasion  by  numbers  is  of  itself  intimidating,  and  not  allowable. 
12.  Picketing  in  proximity  to  the  shops  or  elsewhere  on  the 
streets  of  the  city,  if  in  fact  it  annoys  or  intimidates  the  new  em- 
ployees, is  not  allowable.    The  streets  are  for  public  use,  and  the 


682  CURRENT  ECONOMIC  PROBLEMS 

new  employee  has  the  same  right,  neither  more  nor  less,  to  go  back 
and  forth,  freely  and  without  molestation  and  without  being  harassed 
by  so-called  arguments,  and  without  being  picketed,  as  has  a  defend- 
ant or  other  person.  In  short,  the  rights  of  all  parties  are  one  and 
the  same. 

334.     The  Danbury  Hatters'  Case'" 

BY    HARRY    W.    LAIDLER 

In  1897  the  United  Hatters  of  North  America  began  a  national 
struggle  for  the  closed  shop.  According  to  the  Hatters'  Journal, 
16  firms  were  unionized  as  the  result  of  the  boycott  within  a  period 
of  18  months.  For  eleven  months  a  vigorous  boycott  was  waged 
against  Berg  &  Company  of  Orange,  New  Jersey,  at  the  cost  to  the 
unions  of  $18,000.  Berg's  business  was  reduced  from  2,400  to  500 
dozen  hats  before  he  agreed  to  the  closed  shop.  In  April,  1901, 
Roelof  &  Company,  of  Philadelphia,  were  especially  subjected  to 
the  attention  of  the  unionists.  It  is  estimated  that  the  expenditure 
of  $23,000  by  the  unionists  caused  Roelof  a  loss  of  some  $250,000 
during  the  boycotting  period. 

Then  an  effort  was  made  to  unionize  the  factory  of  D.  E.  Loewe 
&  Company  of  Danbury,  Connecticut.  Unionists  proposed  a  closed 
shop  to  Loewe,  referring  to  the  fate  of  other  hatters  who  had  with- 
stood their  demands.  Loewe,  however,  refused  to  concede.  On 
July  25,  1902,  250  employees  were  called  out.  The  shipping  clerk 
was  employed  by  the  union  to  discover  the  destination  of  the  vari- 
ous assignments.  He  rode  on  the  wagons,  made  observations  in 
the  streets  and  at  the  railway  stations,  and  reported  the  results  to 
the  union.  Customers'  names  were  immediately  sent  to  the  unions 
in  whose  towns  the  goods  were  to  be  delivered,  and  unionists  were 
requested  to  write  to,  or  call  upon,  the  dealers  and  to  persuade  them 
to  cease  their  dealings.  Five  organizers  were  routed  among  unions 
and  dealers  in  different  parts  of  the  country.  Boycott  advertise- 
ments appeared  in  the  trade  and  labor  journals,  and  descriptions 
-  -false  according  to  the  company — of  labor  conditions  at  Loewe's 
were  sent  broadcast. 

The  company  claimed  that  this  warfare  was  most  effective ;  that, 
during  1901,  the  firm  made  a  net  profit  of  $27,000,  which  decreased 
into  a  $17,000  net  loss  in  1902,  after  the  boycott  began,  and  into 
one  of  $15,000  during  1903.  In  1903  the  company  claimed  the  loss 
in  gross  business  from  17  New  York  firms  alone  was  $84,700,  from 

"•Adapted  from  Boycotts  and  the  Labor  Struggle,  151-156,  published  by 
John  Lane  Co.  (1914).  and  "The  Supreme  Court  Decision  in  the  Danbury 
Hatters'  Case,"  in  The  Survey,  XXXIII.  415-416.     Copyright  (1915). 


SOCIAL-LEGAL  INSTITUTIONS  683 

26  other  customers,  $160,690,  and  from  Triest,  a  California  jobber, 
$80,000,  making  a  total  of  $325,390;  that  the  loss  of  gross  business 
in  1902  was  much  less,  but  still  very  substantial.  The  company 
concluded  that  the  net  damage  caused  by  the  boycott  amounted  to 
more  than  $88,000.  These  items,  the  company  declared,  did  not 
take  into  consideration  the  normal  increase  in  business  during  the 
years  1902  and  1903. 

Ivoewe  &  Company  first  filed  a  suit  against  the  unions  in  the 
United  States  Circuit  Court  at  Hartford,  on  August  31,  1903,  charg- 
ing them  with  violating  the  Sherman  Anti-Trust  law.  Various  post- 
ponements carried  the  case  along  until  1907,  when  Judge  James  P. 
Piatt  of  the  Circuit  Court  asked  the  Supreme  Court  of  the  United 
States  for  a  ruling  on  the  damage  clause  of  the  Sherman  law.-" 
Chief  Justice  Fuller,  who  delivered  the  opinion  in  the  case,  Feb- 
ruary 3,  1908;^^  declared  that  the  boycotting  case  came  within  the 
statute  as  a  conspiracy  in  restraint  of  trade  among  the  several  states. 
On  October  13,  1909,  the  case  was  brought  to  trial. 

Over  200  witnesses  testified  for  the  defendants,  and  the  trial 
lasted  nearly  five  months.  In  his  charge  to  the  jury.  Judge  Piatt, 
overstepping  his  authority,  directed  the  jury  to  bring  in  a  verdict 
for  Loewe,  requesting  the  jurymen  to  consider  the  question  of 
damages  as  the  "only  question  with  which  they  could  properly  con- 
cern themselves."  The  jury  brought  in  a  verdict  of  $74,000  damages 
against  the  union.  This  amount  was  trebled  under  the  triple  damage 
provision  of  the  Sherman  law.  Adding  the  costs,  the  total  damages 
finally  assessed  were  $232,240. 

The  case,  however,  was  appealed  to  the  Circuit  Court  of  Appeals 
of  the  Second  Judicial  District,  on  a  writ  of  error,  and  on  April  10, 
191 1,  the  judgment  was  reversed,  the  judges  declaring  that  Judge 
Piatt  had  erred  in  taking  upon  himself  the  function  of  the  jury, 
and  in  leaving  to  the  jurymen  only  the  question  of  the  assessment 
of  damages ;  also  in  assuming  that  mere  membership  in  the  United 
Hatters'  Association  made  a  unionist  responsible  as  a  principal  for 
all  illegal  actions  of  agents  of  the  officers.^* 

An  unsuccessful  effort  was  made  to  have  the  United  States  Su- 
preme Court  review  the  case  in  January,  1912.  A  retrial  of  the 
case,  however,  was  held  in  Connecticut,  ending  October  11,  1912, 
the  jury  delivering  a  verdict  of  $80,000  and  costs.  The  total  award 
was  $252,130.  The  jury  took  the  position  that  the  minutes,  reso- 
lutions, reports,  proclamations,  and  printed  discussions  which  the 

"See  sec  7  of  the  law  in  Reading  214  supra, 
"Loewe  v.  Lawlor,  208  U.  S.  274. 
"Lawlor  v.  Loewe,  iS"?  Fed.  522. 


684  CURRENT  ECONOMIC  PROBLEMS 

officers  and  agents  of  the  association  publicly  proclaimed  and  cir- 
culated among  the  membership  were  approved  or  warranted  by 
the  individual  members  of  the  association.  The  case  was  again 
appealed  to  the  Circuit  Court  of  Appeals,  Second  Circuit,  which,  in 
December,  1913,  confirmed  the  decision  of  the  lower  court. 

An  appeal  was  taken  to  the  Supreme  Court.  On  January  5,  191 5, 
it  reaffirmed  the  judgment  for  $252,130  against  186  Danbury  hatters 
found  guilty  of  violating  the  provisions  of  the  Sherman  Anti-Trust 
act.^®  The  decision  reaffirmed  the  position  taken  by  the  Supreme 
Court  in  1908  that  a  boycott  conducted  by  a  trade  union  against  a 
firm  whose  products  are  sold  in  any  state  other  than  that  in  which 
they  are  manufactured  constitutes  "a  combination  in  restraint  of 
trade."  The  primary  and  secondary  boycott  and  the  unfair  list  were 
alike  condemned  as  coming  within  the  scope  of  the  act.  The  deci- 
sion stated: 

The  circulation  of  a  list  of  unfair  dealers,  manifestly  intended  to  put 
the  ban  upon  those  whose  names  appear  therein,  among  an  important  body 
of  possible  customers  is  within  the  possibilities  of  the  Sherman  act  if  it  is 
intended  to  restrain  and  restrains  commerce  among  the  states. 

It  requires  more  than  the  blindness  of  justice  not  to  see  that  many 
branches  of  the  United  Hatters  and  the  Federation  of  Labor  to  both  of 
which  the  defendants  belonged,  in  pursuance  of  a  plan  emanating  from  head- 
quarters, made  use  of  such  lists  and  of  the  principal  and  secondary  boycott 
in  their  effort  to  subdue  the  plaintiffs  in  their  demands. 

The  main  question,  then,  to  be  determined  was  whether  or  not 
the  186  members  of  the  union  whose  homes  and  bank  accounts  had 
been  attached  had,  by  their  actions,  authorized  the  boycott.  The 
court  held  that  the  acts  could  be  presumed  to  be  authorized,  and 
the  members  of  the  union  could  be  held  liable  if  the  latter  "paid 
their  dues  and  continued  to  delegate  authority  to  their  officers  unlaw- 
fully to  interfere  with  the  plaintiffs'  interstate  commerce  in  such 
circumstances  as  they  knew  and  ought  to  have  known,  and  such 
officers  were  warranted  in  their  belief  that  they  were  acting  in  the 
matters  within  their  delegated  authority." 

The  decision  declared  the  propriety  of  introducing  into  the 
court  newspapers,  and  like  evidence,  to  show  that  the  acts  were 
brought  home  to  the  defendants. 

The  decision  comes  as  a  crushing  blow  to  unionism,  and  especially 
to  the  defendant  hatters,  to  many  of  whom  the  collection  of  the 
judgment  will  mean  ruin.  Whether  the  unfortunates  will  receive 
succor  from  the  American  Federation  of  Labor,  or  from  the  hatters' 
union,  is  not,  at  the  present  writing,  certain. 

*Lawlor  v.  Loewe,  235  U.  S.  522. 


SOCIAL-LEGAL  INSTITUTIONS  68$ 

The  question  now  uppermost  in  the  minds  of  union  men  is,  Can 
the  courts  similarly  reach  the  funds  of  the  unions  under  the  new 
Clayton  amendment?  If  it  is  found  that  sec.  20  of  this  bill  does 
not  protect  them,  a  vigorous  agitation  on  the  part  of  labor  for  the 
enactment  of  another  law  exempting  labor  organizations  from  all 
prosecutions  under  the  provisions  of  the  Sherman  act  may  be  antici- 
pated. This  decision  may  give  a  great  impetus  to  political  action  on 
'the  part  of  American  trade  unionists. 

335.     A  Legal  Criticism  of  the  Injunction'" 

BY  CHARLES  CLAFLIN  ALLEN 

Violation  of  injunction  is  punishable  as  contempt  of  court. 
Punishment  for  contempt  of  court  is  the  most  summary  and  arbi- 
trary exercise  of  authority  under  the  English  and  American  judica- 
ture. It  is  the  reserve  power  inherent  in  every  court  of  general 
jurisdiction  to  punish  by  fine  or  imprisonment,  in  order  to  maintain 
its  dignity  and  enforce  its  commands;  a  power  which  is  absolutely 
essential  to  the  proper  conduct  of  courts  of  justice. 

The  person  charged  with  contempt  is  entitled  to  be  heard,  but  he 
must  appear  in  person  and  not  by  attorney.  He  has  no  right  to  be 
heard  by  counsel,  nor  to  trial  by  jury.  And  the  trial  of  facts  for 
contempt  not  committed  in  facie  curiae  is  usually  on  affidavits.  While 
in  contempt  of  an  injunction,  he  can  not  move  to  dissolve,  nor  can 
he  attack  the  jurisdiction  of  the  court  under  the  original  bill,  nor 
file  any  sort  of  dilatory  pleading  whatever,  till  he  has  purged  him- 
self of  the  contempt.  In  short  a  party  to  a  suit  may  go  to  jail  for 
contempt  of  a  preliminary  injunction  issued  ex  parte,  without  notice 
to  defendant,  which  is  subsequently — and  after  the  defendant  has 
served  his  term  of  imprisonment — held  to  be  without  equity — that 
is,  void.  This  is  a  tremendous  power  to  place  in  the  hands  of  one 
man ;  for  from  his  judgment  there  is  no  appeal. 

And  what  is  the  purpose  of  issuing  injunctions  against  great 
masses  of  men?  What  object  is  to  be  attained  by  making  200,  or 
even  500  strikers,  parties  to  a  suit,  out  of  a  total  number  of  many 
thousands?  Personal  service  on  more  than  a  few,  in  time  to  make 
the  writ  effective,  is  impracticable.  Is  it  intended  that  the  mere 
issuing  of  the  writ  should  act  in  terrorem  over  the  entire  body  of 
men  engaged  in  the  strike?  Or  is  it  expected,  by  posting  copies  in 
public  places,  to  establish  a  novel  method  of  service  by  publication? 
Is  the  decree  to  serve  the  purpose  of  a  mere  executive  proclamation, 

"Adapted  from  an  address  published  in  28  American  Law  Review  828 
(1894). 


686  CURRENT  ECONOMIC  PROBLEMS 

warning  evil-doers  against  a  continuance  of  their  misconduct,  and 
without  force  or  validity,  except  as  a  basis  for  invoking  the  military 
power?  Surely  not.  Such  a  construction  would  be  a  degradation 
of  judicial  process.  Then  the  conclusion  remains  that  the  real  pur- 
pose is  to  use  the  injunction  for  calling  forth  the  power  of  the  court 
to  punish  for  contempt;  to  make  of  a  court  of  equity  in  practical 
effect  a  criminal  court. 

The  practice  of  "blanket  injunctions"  covering  large  numbers  of 
persons,  not  actual  parties  to  the  suit,  and  without  personal  service 
upon  them,  is  indefensible.  It  is  a  general  rule,  as  old  as  equity 
jurisprudence,  that  persons  not  parties  to  the  bill  are  not  bound  by 
the  decree. 

After  all,  what  does  it  mean,  this  sudden  development  of  equity 
jurisdiction?  Whither  are  we  tending?  An  injunction  sued  out  by 
the  United  States  against  10,000  strikers  and  all  the  world  besides 
Does  the  injunction  stop  the  strike?  Troops  are  called  out  to  aid 
the  process.  Do  they  aid  it?  Some  scores  of  rioters  are  killed,  but 
where  was  the  injunction  meanwhile? 

336.     Unionism  and  the  Conditions  of  Employment'^ 

Included  in  the  right  of  personal  liberty  and  the  right  of  private 
property — partaking  of  the  nature  of  each-^is  the  right  to  make 
contracts  for  the  acquisition  of  property.  Chief  among  such  con- 
tracts is  that  of  personal  employment,  by  which  labor  and  other 
services  are  exchanged  for  money  or  other  forms  of  property.  If 
this  right  be  struck  down  or  arbitrarily  interfered  with,  there  is 
substantial  impairment  of  liberty  in  the  long-established  constitu- 
tional sense.  The  right  is  as  essential  to  the  laborer  as  to  the  capi- 
talist, to  the  poor  as  to  the  rich;  for  the  vast  majority  of  persons 
have  no  other  honest  way  to  begin  to  acquire  property,  save  by 
working  for  money. 

An  interference  with  this  liberty  so  serious  as  that  now  under 
consideration,  and  so  disturbing  of  equality  of  right,  must  be  deemed 
to  be  arbitrary,  unless  it  be  supportable  as  a  reasonable  exercise  of 
the  police  power  of  the  state.  But,  notwithstanding  the  strong  gen- 
eral presumption  in  favor  of  the  validity  of  state  laws,  we  do  not 

•* Adapted  from  the  opinion  of  the  court  in  the  case  of  Coppage  v.  State 
of  Kansas,  236  U.S.  i  (iQiS).  A  workman  was  discharged  for  refusing  to 
sever  his  connection  with  a  labor  organization.  A  law  of  the  state  of  Kan- 
sas, where  the  suit  originated,  forbade  employers  requiring  of  employees  an 
agreement  not  to  become  or  remain  members  of  labor  organizations  as  a 
condition  of  securing  or  retaining  employment.  The  Kansas  statute,  involved 
in  this  case,  was  declared  unconstitutional. 


SOCIAL-LEGAL  INSTITUTIONS  687 

think  the  statute  in  question,  as  construed  and  applied  in  this  case, 
can  be  sustained  as  a  legitimate  exercise  of  that  power. 

The  act,  as  the  construction  given  to  it  by  the  state  court  shows, 
is  intended  to  deprive  employers  of  a  part  of  their  liberty  of  contract, 
to  the  corresponding  advantage  of  the  employed  and  the  upbuilding 
of  the  labor  organization^.  But  no  attempt  is  made,  or  could  rea- 
sonably be  made,  to  sustain  the  purpose  to  strengthen  these  voluntary 
organizations  any  more  than  other  voluntary  associations  of  persons, 
as  a  legitimate  object  for  the  exercise  of  the  police  power.  They 
are  not  public  institutions  charged  by  law  with  public  or  govern- 
mental duties,  such  as  would  render  the  maintenance  of  their  mem- 
bership a  matter  of  direct  concern  to  the  general  welfare.  If  they 
were,  a  different  question  would  be  presented. 

As  to  the  interest  of  the  employed,  it  is  said  by  the  Kansas 
Supreme  Court  to  be  a  matter  of  common  knowledge  that  "Employees, 
as  a  rule,  are  not  financially  able  to  be  as  independent  in  making 
contracts  for  the  sale  of  their  labor  as  are  employers  in  making  a 
contract  of  purchase  thereof."  No  doubt,  wherever  the  right  of 
private  property  exists,  there  must  and  will  be  inequalities  of  for- 
tune ;  and  thus  it  naturally  happens  that  parties  negotiating  about  a 
contract  are  not  equally  unhampered  by  circumstances.  This  applies 
to  all  contracts  and  not  merely  to  that  between  employer  and  em- 
ployee. Indeed  a  little  reflection  will  show  that  wherever  the  right 
of  private  property  and  the  right  of  free  contract  coexist,  each  party 
when  contracting  is  inevitably  more  or  less  influenced  by  the  ques- 
tion whether  he  has  much  property,  or  little,  or  none;  for  the  con- 
tract is  made  to  the  very  end  that  each  may  gain  something  that  he 
needs  or  desires  more  urgently  than  that  which  he  proposes  to  give 
in  exchange.  And,  since  it  is  self-evident  that,  unless  all  things  are 
held  in  common,  some  persons  must  have  more  property  than  others, 
it  is  from  the  nature  of  things  impossible  to  uphold  freedom  of  con- 
tract and  the  right  of  private  property  without  at  the  same  time 
recognizing  as  legitimate  those  inequalities  of  fortune  that  are  the 
necessary  result  of  the  exercise  of  those  rights. 

It  is  said  in  the  opinion  of  the  state  court  that  membership  in  a 
labor  organization  does  not  necessarily  affect  a  man's  duty  to  his 
employer ;  that  the  employer  has  no  right  by  virtue  of  the  relation, 
"to  dominate  the  life  nor  to  interfere  with  the  liberty  of  the  employee 
in  matters  that  do  not  lessen  or  deteriorate  the  service,"  and  that 
"the  statute  implies  that  labor  unions  are  lawful  and  not  inimical 
to  the  rights  of  employers."  The  same  view  is  presented  in  the 
brief  of  counsel  for  the  state,  where  it  is  said  that  membership  in 


688  CURRENT  ECONOMIC  PROBLEMS 

a  labor  organization  is  the  "personal  and  private  affair"  of  the  em- 
ployee. To  this  line  of  argument  it  is  sufficient  to  say  that  it  cannot 
be  judicially  declared  that  membership  in  such  an  organization  has 
no  relation  to  a  member's  duty  to  his  employer;  and  therefore,  if 
freedom  of  contract  is  to  be  preserved,  the  employer  must  be  left 
at  liberty  to  decide  for  himself  whether  such  membership  by  his 
employee  is  consistent  with  the  satisfactory  performance  of  the  duties 
of  the  employment. 

Of  course  we  do  not  intend  to  say,  nor  to  intimate,  anything 
inconsistent  with  the  right  of  individuals  to  join  labor  unions,  nor 
do  we  question  the  legitimacy  of  such  organizations  so  long  as  they 
conform  to  the  laws  of  the  land  as  others  are  required  to  do.  Con- 
ceding the  full  right  of  the  individual  to  join  the  union,  he  has  no 
inherent  right  to  do  this  and  still  remain  in  the  employ  of  one  who 
is  unwilling  to  employ  a  union  man,  any  more  than  the  same  indi- 
vidual has  the  right  to  join  the  union  without  the  consent  of  the 
organization.  Can  it  be  doubted  that  a  labor  organization — a  volun- 
tary association  of  workingmen — has  the  inherent  and  constitutional 
right  to  deny  membership  to  any  man  who  will  not  agree  that  during 
such  membership  he  will  not  accept  or  retain  employment  in  com- 
pany with  non-union  men?  Or  that  a  union  man  has  the  constitu- 
tional right  to  decline  proffered  employment  unless  the  employer 
will  agree  not  to  employ  any  non-union  man  ? 

And  can  there  be  one  rule  of  liberty  for  the  labor  organization 
and  its  members,  and  a  different  and  more  restrictive  rule  for 
employers  ?  We  think  not ;  and  since  the  relation  of  employer  and 
employee  is  a  voluntary  relation,  as  clearly  as  it  is  between  the  mem- 
bers of  a  labor  organization,  the  employer  has  the  same  inherent 
right  to  prescribe  the  terms  upon  which  he  will  consent  to  the 
relationship,  and  to  have  them  fairly  understood  and  expressed  in 
advance. 

When  a  man  is  called  upon  to  agree  not  to  become  or  remain 
a  member  of  the  union  while  working  for  a  particular  employer,  he 
is  in  effect  only  asked  to  deal  openly  and  frankly  with  his  employer, 
so  as  not  to  retain  the  employment  upon  terms  to  which  the  latter 
is  not  willing  to  agree.  And  the  liberty  of  making  contracts  does 
not  include  a  liberty  to  procure  employment  from  an  unwilling 
employer,  or  without  a  fair  understanding.  Nor  may  the  employer 
be  foreclosed  by  legislation  from  exercising  the  same  freedom  of 
choice  that  is  the  right  of  the  employee. 

To  ask  a  man  to  agree,  in  advance,  to  refrain  from  affiliation 
with  the  union  while  retaining  a  certain  position  of  employment,  is 
not  to  ask  him  to  give  up  any  part  of  his  constitutional  freedom. 


SOCIAL-LEGAL  INSTITUTIONS  689 

He  is  free  to  decline  the  employment  on  those  terms,  just  as  the 
employer  may  decline  to  offer  employment  on  any  other;  for  "it 
takes  two  to  make  a  bargain."  Having  accepted  employment  on 
those  terms,  the  man  is  still  free  to  join  the  union  when  the  period 
of  employment  expires;  or,  if  employed  at  will,  then  any  time 
upon  simply  quitting  the  employment.  And  if  bound  by  his  own 
agreement  to  refrain  from  joining  during  a  stated  period  of  employ- 
ment, he  is  in  no  different  situation  from  that  which  is  necessarily 
incident  to  term  contracts  in  general.  For  constitutional  freedom  of 
contract  does  not  mean  that  a  party  is  to  be  as  free  after  making  a 
contract  as  before ;  he  is  not  free  to  break  it  without  accountability. 
Freedom  of  contract,  from  the  very  nature  of  the  thing,  can  be 
enjoyed  only  by  being  exercised;  and  each  particular  exercise  of  it 
involves  making  an  engagement  which,  if  fulfilled,  prevents  for  the 
time  any  inconsistent  course  of  conduct. 


xm 

SOCIAL  REFORM  AND  TAXATION 

It  is  not  surprising  that  with  the  passing  of  laissez-faire  and  the  assump- 
tion of  a  larger  area  of  control  by  the  state,  there  should  arise  fresh  interest 
in  the  problems  of  taxation.  A  society  using  means  of  control  as  varied  as 
ours  could  not  overlook  so  facile  an  instrument.  Nor  could  it  long  ignore 
the  vital  fact  that  its  new  social  responsibilities  require  increased  expendi- 
tures, and  that  the  field  of  taxation  must  be  newly  explored  to  discover 
sources  of  additional  revenue. 

More  than  one  generation  of  economists  has  fought  over  the  question 
of  whether  taxation  should  be  used  as  an  instrument  of  social  control.  The 
advocates  of  "taxes  for  revenue  only"  have  usually  seriously  routed  their 
opponents,  chiefly  because  of  the  nicety  with  which  their  fiscal  theories  have 
harmonized  with  general  intellectual  theories  established  upon  an  individual- 
istic basis.  But  the  advocates  of  taxes  as  means  of  control  have  quite  as 
seriously  triumphed  over  their  opponents  in  determining  usual  practices. 
The  small  town  vindicates  its  belief  in  mercantilism  by  taxing  the  out-of- 
town  peddler;  tax  assessors  very  conveniently  under-assess,  or  fail  to  assess, 
the  property  of  industries  which  their  districts  are  anxious  to  "encourage"; 
the  state  attempts  to  shape  its  tax  laws  in  such  a  way  as  to  invite  investment 
from  other  states;  public  sentiment  demands  a  high  excise  duty  on  intox- 
icants as  a  means  of  decreasing  their  consumption;  and  the  nation  legislates 
"prosperity"  by  rapid  and  skilful  manipulation  of  customs  duties.  There  is 
nothing  novel  in  even  the  advocacy  of  the  single  tax  as  a  means  of  correct- 
ing distribution,  encouraging  production,  and  eliminating  social  evils.  And 
when  we  remember  that  a  tax  on  commodities  will  decrease  consumption, 
and  are  confronted  by  such  an  instance  as  a  tax  on  distilleries  causing  a 
rapid  development  of  technique,  it  is  evident  that  we  could  not  escape  using 
this  vehicle  in  programs  of  social  control,  even  if  we  would. 

But  whether  or  not  the  system  of  taxation  is  to  be  used  to  effect  changes 
in  social  life  and  institutions,  a  rational  use  of  the  machinery  of  taxation 
must  be  based  upon  adequate  knowledge.  This  includes,  first  of  all,  a  clear 
idea  of  the  classes  or  properties  which  we  wish  to  bear  the  assessed  taxes, 
and  why  we  wish  to  put  the  burdens  upon  them.  We  must,  in  short,  have 
principles  or  "canons"  of  taxation.  In  the  second  place,  we  must  know  the 
machinery  of  taxation  well  enough  to  know  just  how  to  reach  the  desired 
objects,  assuming  that  they  are  not  beyond  reach.  Taxes,  you  know,  have 
a  disagreeable  habit  of  getting  "shifted" ;  and  quite  frequently  their  "inci- 
dence" falls  upon  those  whom  we  had  no  intention  of  burdening.  If  we 
are  taking  thought  for  the  morrow,  and  are  concerned  with  increased 
efficiency  of  production  and  "equity"  in  distribution,  we  must  pay  particular 
attention  to  the  incidence  of  taxes  on  the  factors  of  production.  In  the 
third  place,  the  consequences  of  taxation  are  not  confined  to  shifting;  taxes 
produce  other  effects  than  those  evidenced  by  price  changes.  Such  social 
consequences  as  business  failures,  greater  concentration  in  industry,  changes 
in  technique,  and  relocalization  of  industries  must  be  as  accurately  anticipated 
as  possible. 

Today  our  concern  is  not  so  much  with  the  use  of  taxation  as  a  means 
of  social  control  as  of  adjusting  the  system  to  the  present  industrial  situa- 
tion and  of  making  it  yield  larger  and  larger  revenues.     The  first  of  these 

690 


PROBLEMS  OP  TAXATION  691 

is  requiring  an  abandonment  of  the  general  property  tax.  This  time-honored 
fiscal  institution  was  admirably  adapted  to  rural  and  handicraft  com- 
munities ;  but  it  seems  unable  to  reconcile  itself  with  the  varied  forms  of 
property  which  Modern  Industrialism  has  produced.  The  older  methods  of 
assessment  are  also  inadequate.  Small  industrial  units,  organized  as  indi- 
vidual businesses,  could  justly  be  assessed  by  county  or  local  officials. 
The  property  of  huge  corporations,  lying  in  many  counties  or  states,  and 
much  more  valuable  as  entities  than  the  aggregate  of  material  properties 
would  indicate,  demands  a  more  centralized  system  of  assessment.  It  is 
evident,  too,  that  to  treat  individuals  alike  is  not  to  give  them  equal  treat- 
ment. The  old  principle  of  assessment  at  a  uniform  rate,  found  in  so  many 
of  our  state  constitutions,  is  an  inheritance  from  the  eighteenth  century. 
The  system,  in  short,  must  be  made  to  conform  to  the  newer  concepts  in 
which   modern   industrial  life  is  expressed. 

But  of  greater  importance  is  the  increasing  demand  for  revenue.  We 
are  being  called  upon  to  extend  our  educational  system;  to  furnish  to  the 
people  opportunities  for  recreation,  amusement,  and  cultural  development; 
to  lighten  the  burden  of  economic  insecurity;  to  perfect  an  adequate  mech- 
anism of  social  control.  These  demands  are  constantly  becoming  more 
imperative.  To  meet  them  our  scheme  of  taxes  must  be  reconstructed. 
Customs  duties  and  excise  taxes  are  likely  to  be  retained  because  of  the 
ease  of  their  collection.  The  income  tax,  so  closely  in  harmony  with  modern 
concepts  of  pecuniary  property,  is  likely  to  grow  in  favor.  The  corpora- 
tions are  by  no  means  immune  from  taxation  with  increasing  severity. 
Increased  volume  of  business,  operation  in  "a  stage  of  increasing  returns," 
and  lack  of  imperative  demand  for  the  lowering  of  prices  together  create 
an  ideal  condition  for  an  increase  in  such  taxes.  But  perhaps  greater  and 
greater  dependence  will  be  put  in  the  inheritance  tax.  The  yield  from  both 
this  and  from  the  income  tax  is  likely  to  be  greatly  increased  through 
"graduation." 

It  is  more  than  possible  that  "the  single  tax,"  which  for  so  long  has 
preserved  its  theoretical  existence,  will  be  transformed  and  adapted  to  the 
new  situation.  The  time  was  when  the  "single-taxer"  insisted  that  rent 
was  wholly  unearned,  that  it  should  be  taxed  at  100  per  cent,  and  infer- 
entially  that  the  tax  should  be  made  retroactive.  It  is  not  long  since  he 
was  insisting  that  the  levying  of  such  a  tax  would  result  in  the  elimination 
of  all  our  social  evils.  Now  we  are  convinced  that  the  question  at  issue  is 
merely  one  of  the  social  expediency  of  the  private  ownership  of  land;  we 
realize  that  "unearned  increments"  may  attach  themselves  to  instruments  of 
production  other  than  land;  and  we  have  forced  even  the  single-taxer  to 
abandon  the  idea  of  retroactive  taxation.  Many  champions  of  the  scheme 
are  now  insisting  upon  making  the  rate  of  taxation  only  a  fractional  part 
of  100  per  cent.  They  are  no  longer  saying  that  the  single  tax  will  elim- 
inate social  evils,  but  are  insisting  that  it  is  the  only  adequate  device  which 
the  state  can  use  to  secure  the  funds  with  which  to  eliminate  these  evils. 
It  is  in  short  gradually  becoming  "the  tax  on  land  values."  As  such  it  is 
playing  its  part  in  the  solution  of  social  problems  abroad  and  in  the  not 
remote  future  is  likely  to  take  its  place  among  our  efficient  devices  for  raising 
revenue. 

The  use  of  such  taxes,  in  addition  to  raising  revenue,  will  involve 
profound  social  changes.  Inheritance  and  property  will  become  institutions 
quite  different  from  those  we  have  known.  Wealth  will  be  distributed  in 
quite  a  different  way.  The  forces  making  for  social  development  will  be 
different  in  content  and  in  arrangement.  Primarily  designed  as  revenue- 
producers,  these  taxes  will  be  none  the  less  eflfective  instruments  in  trans- 
forming our  institutions. 


692  CURRENT  ECONOMIC  PROBLEMS 

A.    TAXATION  AND  INDUSTRIAL  DEVELOPMENT 
337.     Expenditures  and  Social  Organization^ 

BY  HENRY  CARTER  ADAMS 

The  aggregate  of  public  expenditures  depends,  among  other 
things,  upon  the  theory  of  social  relations  which  a  people  has 
adopted,  and  the  degree  of  strictness  with  which  that  theory  is  fol- 
lowed in  practice.  This  theory  may  be  looked  for  in  the  accepted 
philosophy  of  the  respective  rights  and  duties  of  government  and 
individuals,  or,  what  amounts  to  the  same  thing,  in  the  attitude  of 
mind  which  the  public  instinctively  assumes  when  certain  social  or 
industrial  problems  are  under  consideration. 

The  problems  of  the  class  referred  to  are  such  as  rely  for  their 
solution  upon  the  extension,  in  some  of  its  various  forms,  of  the 
principle  of  co-operation;  but  a  great  deal  depends,  so  far  as  the 
public  expenditures  are  concerned,  upon  the  character  of  that  co- 
operation. Is  the  collective  activity  demanded  governmental  or  is 
it  private  ?  Is  the  co-operation  desired  to  be  secured  by  coercion  or 
through  voluntary  association?  One  cannot  emphasize  too  strongly 
the  contrast  between  these  two  forms  of  social  activity  in  their 
influence  upon  the  aggregate  of  public  expenditures. 

.  It  is  exceedingly  difficult  to  express  in  a  few  words  the  charac- 
teristic features  of  the  social  theories  which,  under  various  forms 
and  with  many  and  constant  modifications,  give  color  to  the  politi- 
cal and  social  fabric  of  various  states.  These  differences  may,  how- 
ever, be  suggested  by  observing  that  the  one  theory  is  a  modification 
of  the  view  of  the  state  assumed  by  Roman  law,  and  exemplified  in 
a  general  way  by  most  of  the  Continental  peoples ;  while  the  other 
is  a  development  of  the  Teutonic  and  Saxon  ideas  of  personal  lib- 
erty ;  and  shows  its  most  natural  unfolding  among  peoples  in  English 
historical  descent.  The  former  makes  the  state  the  center  of  all 
collective  life,  and  defines  the  rights  of  individuals  in  terms  of 
national  importance;  the  latter  places  the  individual  at  the  center 
of  thought,  and  conceives  of  the  state  as  one  of  several  means  to 
individual  attainment  and  development.  Under  the  influence  of  that 
philosophy  which  subordinates  the  individual  to  the  state  it  is 
natural  for  those  intrusted  with  the  administration  of  the  govern- 
ment to  regard  all  questions  as  properly  adjusted  when  the  interests 
of  the  state  are  conserved.  Especially  will  this  be  true  if  to  such 
a  theory  of  society  there  be  added  the  influence  of  the  monarchial 

*  Adapted  from  The  Science  of  Finance,  46-48.  Copyright  by  Henry  Holt 
&  Co.  (1898). 


PROBLEMS  OF  TAXATION  693 

form  of  administration.  It  is  logical,  for  example,  that  they  who 
represent  monarchial  governments  should  accept  the  necessities  of 
the  state  as  the  true  measure  of  legitimate  expenditures,  without 
having  very  much  regard  for  the  concurrent  needs  of  individuals. 
It  is  easy,  also,  under  such  a  social  theory,  for  the  spirit  of  paternal- 
ism to  show  itself  in  many  of  the  items  of  a  budget,  and  for  the 
thought  that  the  state  is  an  industrial  corporation  as  well  as  a  politi- 
cal organization  to  swell  the  proportion  of  public  expenditures. 

The  view  of  social  relations  which  underlies  English  common 
law,  on  the  other  hand,  works  upon  national  expenditure  in  quite 
another  manner,  at  least  so  far  as  those  appropriations  are  concerned 
which  minister  to  pride  and  foster  bureaucracy,  or  which  are  related 
to  the  exercise  of  paternal  functions.  According  to  this  theory 
a  condition  of  liberty  is  conceived  to  be  a  heritage  of  the  individual. 
The  state  is  not  regarded  as  an  organism  in  the  sense  that  it  pos- 
sesses soul,  conscience,  and  sensibilities  of  its  own;  it  is  rather  a 
form  of  association,  and  differs  mainly  from  ordinary  associations 
in  the  character  of  the  service  it  has  to  perform,  and  in  the  fact 
that  these  services  are  of  such  a  sort  as  require  the  state  to  be  the 
depository  of  coercive  power.  Public  concessions  are  judged  from 
the  point  of  view  of  the  interest  of  the  individual,  and  are  approved 
or  disapproved  according  as  they  bear  upon  his  prospects.  The 
result  of  this  philosophy  of  social  relations  among  peoples  who 
practice  self-government  is  to  insist  that  the  government  prove  its 
case  beyond  the  possibility  of  a  doubt  whenever  it  demands  increased 
expenditures  for  approved  services  or  the  approval  of  expenditures 
for  an  unusual  service.  Greater  reliance  is  placed  upon  voluntary 
association  for  the  attainment  of  collective  interests  than  upon 
coercive  association.  And  this  results  inevitably  in  charging  the 
cost  of  many  lines  of  service  to  the  income  account  of  private  cor- 
porations rather  than  to  that  of  the  state.  In  this  manner,  there- 
fore, public  expenditures  are  curtailed  by  virtue  of  individualistic 
philosophy  applied  to  governmental  affairs. 

338.    Taxation  as  a  Means  of  Social  Control 

BY  ADOLPH   WAGNER 

The  modem  science  of  economics  not  only  recognizes  the  mutual 
dependence  of  public  and  private  economic  activity,  and  their  mutu- 
ally complementary  character;  it  also  renounces  the  optimistic  view 
of  the  present  organization  of  private  industry,  and  recognizes  the 

•Adapted  from  Finanswissenschaft,  I,  paragraph  27,  and  II,  paragraph 
159.  Translated  in  Bullock,  Selected  Readings  in  Public  Finance,  178-181 
(1883) 


694  CURRENT  ECONOMIC  PROBLEMS 

great  evils  in  the  system  of  free  competition.  It  has  come  to  know 
that  the  organization  of  productive  industry  by  private  initiative, 
and  the  distribution  of  wealth  which  takes  place  upon  this  basis 
have  a  decisive  social  influence.  It  knows  that  through  this  process 
the  power  and  relations  both  of  individuals  and  of  classes 
are  determined  in  modern  economic  society.  At  the  same  time  our 
science  recognizes  the  influence  which  the  state  exercises  directly 
and  indirectly  upon  the  distribution  of  wealth  and  position  of  social 
classes,  by  the  form  which  its  activity  takes,  by  the  manner  in 
which  it  spends  its  revenues,  by  the  kinds  of  taxation  it  adopts,  and 
by  the  creation  of  public  debts. 

From  the  knowledge  of  our  science  have  developed  two  demands. 
In  the  first  place,  the  state  should  so  order  its  expenditures,  tax 
system,  and  loans  as  to  remove  certain  economic  and  social  evils 
which  have  attended  them  in  the  past.  And  in  the  second  place, 
the  state,  by  adopting  appropriate  policies,  should  remedy  evils 
which  are  not  due  to  its  previous  action  in  financial  and  other  mat- 
ters. From  this  second  demand  it  follows  that,  in  the  domain  of 
public  finance,  expenditures  should  increase  in  order  to  enable 
the  state  to  assume  new  functions ;  and  that  taxation  should  be  em- 
ployed for  the  purpose  of  bringing  about  a  different  distribution 
of  wealth  from  that  which  would  result  from  the  action  of  free 
competition  upon  the  basis  of  the  present  social  order.  It  is  the 
modem  social  problem  which  is  here  beginning  to  work  this  trans- 
formation in  the  science  of  finance. 

One  who  considers  the  present  system  unconditionally  just,  as 
the  liberal  school  did,  must  logically  consider  the  existing  distribu- 
tion of  wealth,  which  results  from  this  order,  as  the  only  righteous 
and  just  distribution.  This  conclusion  the  keener  thinkers  of  the 
school  have  formulated.  For  a  person  of  this  school  the  existing 
distribution  of  wealth  is  a  fact  admitting  of  no  further  discussion. 
It  follows  then  that  taxation  should  not  alter  the  existing  distribu- 
tion. In  this  view  of  the  case,  therefore,  taxation  should  be  con- 
fined to  the  purpose  of  raising  sufficient  revenue ;  and  the  socio- 
political theory  of  taxation  should  be  rejected. 

But,  if  one  disputes  the  premises  underlying  the  teachings  of 
the  liberal  school,  he  can  insist  that  the  conclusion  that  the  dis- 
tribution established  by  competition  is  not  to  be  disturbed  by  tax- 
ation is  not  universally  true.  We  need  beside  the  purely  fiscal  theory 
of  taxation,  to  establish  a  second, — the  socio-political,  by  which  a 
tax  becomes  something  more  than  a  means  of  raising  revenue,  and  is 
considered  a  means  of  correcting  that  distribution  of  wealth  which 
results  from  competition. 


PROBLEMS  OF^  TAX  A  TION  695 

339.    Taxation  and  Technical  Development* 

BY  J.  R,   MC  CULLOCH 

It  is  unnecessary  to  travel  beyond  the  limits  of  financial  history 
for  examples  of  the  powerful  influence  of  taxes  in  stimulating 
ingenuity  and  invention.  Previous  to  1786  the  duties  on  spirits 
distilled  in  Scotland  were  charged  according  to  the  quantities  sup- 
posed to  be  actually  produced.  But  as  this  mode  of  assessing  the 
duty  was  found  to  open  a  door  to  extensive  frauds,  it  was  resolved 
in  its  stead  to  substitute  a  license  duty  proportioned  to  the  size  of 
the  still  used  by  the  distiller.  Stills  being  all  of  the  same  shape, 
and  the  quantity  of  spirits  that  each  could  produce  in  a  year  accord- 
ing to  its  cubic  contents  having  been  accurately  calculated,  it  was 
supposed  that  this  plan  would  effectually  prevent  smuggling,  and 
that  the  officers  would  have  nothing  to  do  but  inspect  the  stills  that 
had  been  licensed,  to  prevent  their  size  being  increased.  On  the 
first  introduction  of  this  apparently  well-considered  system,  the 
license  duty  on  each  still  was  fixed  at  the  rate  of  30J  per  gallon  of 
its  contents. 

The  principle,  however,  on  which  the  duty  was  assessed  was 
very  soon  subverted.  The  stills  in  use  down  to  this  period  were  very 
deep  in  proportion  to  their  diameter,  so  that  after  being  charged  they 
required  at  an  average  about  a  week  before  the  process  of  distilla- 
tion was  completed.  But  the  new  mode  of  charging  the  duty  had 
no  sooner  been  introduced  than  it  occurred  to  two  ingenious  persons, 
Messrs.  John  and  William  Sligo,  distillers,  Leith,  that  by  lessening 
the  depth  of  the  still  and  increasing  its  diameter,  a  larger  surface 
would  be  exposed  to  the  action  of  the  fire,  and  they  would  be  enabled 
to  run  off  its  contents  in  considerably  less  time.  Having  adopted 
this  plan,  they  found  that  it  answered  their  expectations,  and  that 
they  were  able  to  distil  the  same  quantity  of  spirits  in  a  few  hours 
that  had  previously  occupied  a  week.  Messrs.  Sligo  kept  this  import- 
ant invention  secret  for  about  a  year;  but  it  was  too  valuable  to  be 
long  concealed,  and  the  moment  it  transpired,  the  plan  was  adopted 
by  other  distillers.  In  consequence  government  raised,  in  1788,  the 
license  duty  on  the  still  from  309  to  £3  a  gallon. 

This  increase  having  redoubled  the  activity  of  the  distillers,  the 
duty  was  raised  in  1793  to  £9  a  gallon,  in  1795  to  £18,  and  in  1797 
it  was  carried  to  the  enormous  sum  of  £54  a  gallon.  Still,  however, 
the  ingenuity  of  the  distiller  outran  the  increase  of  the  tax;  and  it 
was  proved  before  a  committee  of  the  House  of  Commons  in  1798 
that  distillation  had  been  carried  to  such  perfection  that  stills  had 

•Adapted  from  Treatise  on  Taxation,    2d  edition,  151-152  (1852). 


696  CURRENT  ECONOMIC  PROBLEMS 

occasionally  been  filled  and  discharged  once  every  eight  minutes. 
This,  it  was  supposed,  must  be  the  maximum  of  velocity,  and  a 
new  license  duty  was  laid  on  the  still  on  the  hypothesis  that  it  could, 
at  an  average,  be  run  off  in  that  time,  or  that  it  could  be  filled  and 
emptied  once  every  eight  minutes  during  the  season.  But  the  inge- 
nuity of  the  distillers  was  not  yet  tasked  to  the  highest.  And  it 
was  ascertained  that,  toward  the  latter  end  of  the  license  system, 
stills  of  forty  gallons  had  been,  at  an  average,  filled  and  run  off  in 
the  almost  incredibly  short  space  of  three  minutes,  being  an  increase 
of  2,880  times  on  the  rapidity  of  distillation  that  had  obtained  when 
the  license  system  was  introduced  in  1786 1 

Now  it  will  not  be  alleged,  at  least  with  any  appearance  of  prob- 
ability, that  had  a  duty  of  5  or  10  per  cent  been  laid  on  their  income 
or  capital,  Messrs.  Sligo  would  have  been  half  so  likely  to  make 
this  important  discovery.  But  being  assessed  on  the  still,  the  duty 
had  the  double  effect  of  fixing  attention  especially  on  it,  and  of 
operating  as  a  powerful  incentive  to  its  improvement. 

B.     THE  THEORY  OF  TAXATION 
340.     Canons  of  Taxation* 

BY  ADAM    SMITH 

It  is  necessary  to  premise  the  four  following  maxims  with  regard 
to  taxes  in  general: 

I.  The  subjects  of  every  state  ought  to  contribute  toward  the 
support  of  the  government,  as  nearly  as  possible,  in  proportion  to 
their  respective  abilities ;  that  is,  in  proportion  to  the  revenue  which 
they  respectively  enjoy  under  the  protection  of  the  state.  The  ex- 
pense of  government  to  the  individuals  of  a  great  nation,  is  like  the 
expense  of  management  to  the  joint  tenants  of  a  great  estate,  who 
are  all  obliged  to  contribute  in  proportion  to  their  respective  inter- 
ests in  the  estate.  In  the  observation  or  neglect  of  this  maxim  con- 
sists, what  is  called,  the  equality  or  inequality  of  taxation. 

II.  The  tax  which  each  individual  is  bound  to  pay  ought  to  be 
certain,  and  not  arbitrary.  The  time  of  payment,  the  manner  of 
payment,  the  quantity  to  be  paid,  ought  all  to  be  clear  and  plain 
to  the  contributor,  and  to  every  other  person.  The  certainty  of  what 
each  individual  ought  to  pay  is,  in  taxation,  a  matter  of  so  great 
importance  that  a  very  considerable  degree  of  inequality,  it  appears, 
I  believe,  from  the  experience  of  all  nations,  is  not  nearly  so  great 
an  evil  as  a  very  small  degree  of  uncertainty. 

'Adapted  from  The  Wealth  of  Nations.  Book  V,  chap,  ii,  part  II  (1776). 


PROBLEMS  OF  TAXATION  697 

III.  Every  tax  ought  to  be  levied  at  the  time,  or  in  the  manner, 
in  which  it  is  most  likely  to  be  convenient  for  the  contributor  to 
pay  it.  A  tax  upon  the  rent  of  land  or  of  houses,  payable  at  the  same 
term  at  which  such  rents  are  usually  paid,  is  levied  at  the  time  when 
it  is  most  likely  to  be  convenient  for  the  contributor  to  pay;  or 
when  he  is  most  likely  to  have  wherewithal  to  pay.  Taxes  upon 
such  consumable  goods  as  are  articles  of  luxury  are  all  finally  paid 
by  the  consumer,  and  generally  in  a  manner  that  is  very  convenient 
for  him.  He  pays  them  by  little  and  little,  as  he  has  occasion  to  buy 
the  goods.  As  he  is  at  liberty  too,  either  to  buy,  or  not  to  buy,  as 
he  pleases,  it  must  be  his  own  fault  if  he  ever  suffers  any  consider- 
able inconvenience  from  such  taxes. 

IV.  Every  tax  ought  to  be  so  contrived  as  both  to  take  out  and 
to  keep  out  of  the  pockets  of  the  people  as  little  as  possible  over 
and  above  what  it  brings  into  the  public  treasury  of  the  state. 

341.     The  Burden  of  Taxation' 

BY  S.  J.  CHAPMAN 

As  regards  taxation,  the  first  thing  to  settle  is  the  principle 
according  to  which  its  burden  should  be  distributed.  It  is  commonly 
agreed  at  the  present  time  that  taxation  should  be  designed  so  as 
to  cause  equal  proportional  sacrifice  among  the  taxpayers.  When 
there  is  equality  of  proportional  sacrifice,  people  are  left  in  the  same 
relative  positions  after  being  taxed  as  before. 

This  principle  has  been  called  the  principle  of  equality  of  sac- 
rifice. It  is  better,  however,  to  call  it  the  principle  of  proportional 
sacrifice,  because  equality  of  sacrifice  might  be  interpreted  to  mean 
equality  of  absolute  sacrifice  and  not  of  proportional  sacrifice.  If 
the  utility  of  income  were  constant  and  the  same  for  all — as  it  is 
not — and  a  man  with  £1,000  a  year  and  a  man  with  £500  a  year  con- 
tributed £10  a  year  each  in  taxes,  equal  amounts  of  sacrifice  would 
be  entailed,  but  the  man  with  £500  would  be  involved  in  a  greater 
proportional  sacrifice.  The  proportional  sacrifice  of  the  man  with 
£500  a  year  would  be  the  same  as  that  made  by  a  man  with  £1,000 
a  year  who  paid  £10  in  taxes,  if  the  former  paid  not  £10  but  £5,  on 
the  assumptions  made  as  regards  the  utility  of  income. 

It  is  repeatedly  affirmed  that  the  right  theory  of  taxation  is  the 
faculty  theory.  Generally  speaking,  the  faculty  theory  lays  it  down 
that  a  person  should  pay  taxes  in  proportion  to  his  power  to  do  so. 
Whether  the  faculty  theory  is  the  correct  theory  or  not,  according 

"Adapted  from  Outlines  of  Political  Economy,  376-379.  Published  by 
Longmans,  Green,  &  Co.  (1911). 


698  CURRENT  ECONOMIC  PROBLEMS 

to  the  consensus  of  expert  opinion,  depends  upon  the  exact  meaning 
that  we  read  into  it.  Let  us  take  an  example  from  a  primitive  com- 
munity. The  state  needs  a  particular  piece  of  work  to  be  done. 
Then,  some  say,  for  the  whole  community  to  turn  out  to  do  the 
work,  and  for  each  person  to  work  according  to  his  strength  would 
be  for  each  to  contribute  to  the  service  of  the  state  according  to 
faculty.  But  would  this  be  the  equitable  thing?  If  all  worked  ten 
days,  the  man  of  great  capacity  would  be  doing  absolutely  more 
for  the  state  than  the  man  of  little  capacity.  But  the  latter  would 
be  making  a  greater  proportional  sacrifice  than  the  former.  He 
would  be  doing  so  because  the  man  of  great  capacity,  who  could 
make  much  in  a  year,  in  yielding  up  ten  days  of  his  time  would 
be  surrendering  comparative  superfluities,  whereas  the  man  of  little 
capacity  in  yielding  up  ten  days  of  his  time  would  be  surrendering 
comparative  necessities.  The  force  of  this  argument  will  be  more 
fully  appreciated  when  it  is  put  in  terms  of  money.  Equal  sacri- 
fices of  time  are  equivalent  to  proportional  sacrifices  of  money 
income,  but  proportional  sacrifices  of  money  income  are  not  equiva- 
lent to  proportional  sacrifices  of  real  income,  that  is  of  the  utility 
of  income,  which  is  the  thing  that  ultimately  counts.  However,  the 
faculty  theory  may  be  interpreted  in  such  a  way  as  to  be  made  identi- 
cal with  the  theory  of  proportional  sacrifice. 

The  so-called  ability  theory  is  either  the  faculty  theory  in  the 
form  first  analyzed  above,  or  the  theory  of  proportional  sacrifice. 
If  we  mean  by  any  theory  that  proportional  sacrifice  alone  is  equit- 
able, it  is  best  to  call  it  the  "theory  of  proportional  sacrifice"  so  as 
to  prevent  any  misunderstanding. 

Taxation  which  embodies  the  principle  of  proportional  sacrifice 
must  be  progressive.  By  the  principle  of  progression  is  meant  in 
general  that  the  higher  the  clear  net  income  of  a  person  the  greater 
must  be  the  rate  at  which  he  is  taxed.  The  need  of  progression  is 
derived  from  the  known  facts  as  regards  the  variation  of  the  utility 
of  income  with  its  amount.  In  view  of  the  rate  at  which  the  mar- 
ginal utility  of  income  falls,  it  is  practically  certain  that  taxation 
proportional  to  income  exacts  a  greater  proportional  sacrifice  from 
the  poorer  of  any  two  persons,  other  things  being  equal. 

The  great  obstructions  in  the  way  of  applying  the  principle  of 
progression  with  scientific  accuracy  are  (i)  that  utility  varies  with 
income  diflferently  for  different  persons,  and  even  for  the  same  per- 
son at  different  times,  and  (2)  that  the  variations  of  utility  with 
income  cannot  be  accurately  measured. 


PROBLEMS  OF  TAXATION  699 

C.     THE  INCIDENCE  OF  TAXATION 
342.     Incidence  and  Industrial  Organization" 

BY  A.  W.  FLUX 

There  is  one  feature  connected  with  the  selection  of  forms  of 
taxation  which  is  of  very  great  importance.  It  is  that  the  tax  may 
be  collected  from  one  person  and  its  pressure  be  really  made  to  rest 
on  another.  This  can  be  illustrated  by  taking  the  case  of  a  duty  on 
tea  imported  into  the  country.  It  is  somewhat  obvious  that  the 
importer  pays  the  duty,  but  that  he  has  no  intention  of  bearing  the 
burden.  He  expects  and,  speaking  generally,  contrives  to  pass  on 
the  charge  to  those  to  whom  he  sells,  who  pass  it  on  in  turn  till  the 
final  resting-place  of  the  burden  of  the  tax  is  on  the  consumer. 
Some  increase  of  the  burden  is,  in  fact,  generally  produced  in  such 
a  course  of  transference  from  one  to  another.  None  of  the  dealers 
who  advance,  or  become  responsible  for,  the  duty  do  so  gratuitously, 
and  the  charges,  made  as  a  recompense  for  making  such  advances, 
are  added  to  the  burden  which  the  duty  imposes  on  the  consumer. 
In  distinguishing  between  the  original  person  who  pays  a  tax  and 
those  who  finally  bear  the  burden,  it  is  convenient  to  refer  to  the 
former  by  speaking  of  the  impact  of  the  tax,  to  the  latter  by  speak- 
ing of  its  ultimate  incidence.  The  incidence  may  or  may  not  differ 
from  the  impact.  Where  it  does  differ,  the  tax  is  called  an  indirect 
one ;  where  it  is  the  same  the  tax  is  called  direct,  as  the  levy  is  then 
made  directly  from  the  person  who  ultimately  bears  the  burden  of 
the  tax.  The  problems  connected  with  the  determination  of  the  r^al 
incidence  of  various  forms  of  taxation  are  among  the  most  difficult 
problems  of  economics. 

It  is  useful  to  examine  generally  the  effect  of  taxation  of  the 
chief  forms  of  income,  namely,  rent,  interest,  wages,  profits.  Take 
first  the  case  of  taxes  on  rent.  Inasmuch  as  the  amount  of  rent  is 
not  a  cause  of  high  or  low  price  for  the  commodity  in  whose  pro- 
duction the  rent-yielding  agent  is  employed,  a  tax  on  rent  is  not  an 
influence  affecting  that  price.  If  the  government,  for  example,  claims 
ID  per  cent  of  rent,  that  fact  does  not  influence  the  total  of  the 
rent  or  the  supply  of  the  commodity  concerned.  This  latter  is, 
presumably,  already  arranged  on  a  basis  calculated  to  yield  a  rent 
larger  in  the  aggregate  than  either  a  less  or  greater  supply  would 
yield.  If  that  be  so,  then  90  per  cent  of  the  rent  is  also  greater 
for  that  scale  of  supply  than  that  same  percentage  would  be  for 

•Adapted  from  Economic  Principles;  An  Introductory  Study,  281-286. 
Published  by  E.  P.  Dutton  &  Co.  (1905). 


700  CURRENT  ECONOMIC  PROBLEMS 

any  other  scale,  whether  larger  or  smaller.  Consequently,  the  inci- 
dence of  such  a  tax  is  on  the  receivers  of  rents.  The  total  rent 
yielded  is  unchanged,  but  the  proprietors  of  rent-yielding  property 
receive  only  90  per  cent  of  the  amount  instead  of  the  whole.  They 
cannot  improve  their  position  by  modifying  the  total  rent-yield,  for 
anything  which  would  add  to  it  would  have  been  a  source  of  gain 
independent  of  the  tax,  and  cannot,  therefore,  be  brought  into  exis- 
tence by  the  introduction  of  the  tax.  If  they  adopt  changes  lowering 
the  total  of  the  rent-yield,  they  will  thereby  lower ,their  share,  viz., 
90  per  cent  of  that  total.  Thus  the  burden  of  a  tax  on  rent  cannot 
be  shifted. 

The  taxation  of  interest  stands  on  a  very  different  footing.  It 
reduces  the  yield  due  to  ownership  of  capital,  and  thus  influences 
the  supply  of  capital.  There  is  reason  for  believing  that  the  lower- 
ing of  the  net  yield  rendered  by  capital  to  its  owner  would  discourage 
accumulation,  and  thus  reduce  the  volume  of  the  supplies  of  new 
capital.  This  reduction  of  volume  would  modify  the  marginal  pro- 
ductivity of  capital,  for  the  application  of  capital  to  some  of  the  less 
productive  purposes  would  be  restrained  by  the  scantier  volume  of 
new  supplies.  Thus  the  marginal  productivity  of  capital  would  be 
raised  in  a  way  which  reduced  the  total  productivity  of  industry. 
This  rise  of  marginal  productivity  would  correspond  to  a  higher 
loan-value  of  capital,  and  thus,  at  any  rate  in  part,  the  burden  of 
the  tax  would  be  shifted  from  the  owner  of  the  capital  to  its  users. 
This  shifting  would,  in  the  course  of  time,  transfer  the  burdens  to 
the  consumers  of  the  commodities  in  the  production  of  which  capital 
is  employed,  that  is,  practically  remove  the  burden  of  the  tax,  on 
the  revenue  yielded  by  capital,  to  the  consumers  of  goods.  It  is  not 
contended  that  no  part  of  the  burden  would  remain  on  the  owners 
of  capital  as  such,  or  that,  as  consumers,  they  would  not  bear  some 
part  of  the  diffused  burden,  but  that  that  chief  part  of  the  tax  placed 
on  owners  of  capital,  as  receivers  of  interest,  would  not  permanently 
remain  on  that  class  of  the  community. 

If  the  tax  on  the  interest  does  not  fall  equally  on  the  interest- 
yield  of  all  kinds  of  capital,  there  will  result  a  preferential  invest- 
ment of  capital  in  forms  which  escape  taxation,  and  an  avoidance 
of  taxed  forms.  This  will  tend  to  lower  the  marginal  productivity 
of  untaxed  forms  of  capital  and  raise  that  of  the  taxed  forms,  till 
the  net  yield  to  the  owners  approaches  equality.  Further,  if  land, 
and  the  revenues  from  land  ownership,  remained  unaffected  by  a  tax 
which  fell  on  revenues  from  capital,  and  no  corresponding  burden 
were  placed  on  the  revenues  from  land,  land  values  would  rise  rela- 
tive to  capital,  and  the  ownership  of  land  would  gain  in  attractiveness 


.       PROBLEMS  OF  TAXATION  701 

from  the  investment  point  of  view*  so  long  as  the  rise  of  its  value 
had  not  counterbalanced  the  freedom  from  taxation  of  the  revenues 
derived  from  it.  Inasmuch  as  it  is  practically  impossible  to  subject 
to  equal  taxation  the  revenues  from  trade  capital,  estimated  in 
money,  and  those  derived  from  the  use  of  consumption  capital, 
which  are,  for  the  most  part,  not  estimated  in  that  form,  the  effect 
of  taxes  on  interest  might  be,  in  part,  to  encourage  the  creation  and 
ownership  of  consumption  capital  rather  than  of  trade  capital. 

Taxation  of  interest  must,  in  practice,  take  the  form  of  taxation 
of  revenues  derived  from  the  ownership  of  capital,  and  is  likely, 
therefore,  to  touch  some  other  classes  of  revenue  in  addition  to  in- 
terest. 

The  particular  class  of  revenue  most  likely  to  be  included  with 
interest  is  the  remuneration  for  risk-taking.  In  so  far  as  a  reduc- 
tion, in  the  gains  derivable  from  undertaking  the  risks  of  industrial 
and  other  business  operations,  would  operate  to  diminish  the  will- 
ingness of  owners  of  capital  to  accept  the  risks,  the  taxation  of 
profits  would  tend  to  divert  capital  and  enterprise  to  the  less  risky 
openings  for  their  employment.  This  would  increase  the  competi- 
tion in  such  lines  and  operate  to  reduce  the  general  return  to  capital 
and  check  the  rate  of  accumulation.  The  taxation  of  profits,  there- 
fore, except  in  the  degree  in  which  they  proceed  from  monopoly,  or 
from  rent-yielding  differential  advantages  in  production,  is  not,  in 
the  long  run,  taxation  the  burden  of  which  remains  where  it  first 
falls.    It  is  gradually  diffused  over  the  community  as  a  whole. 

Turning  to  the  subject  of  taxes  on  wages,  the  same  kind  of 
problem  is  again  presented.  If  a  reduction  of  the  net  receipts  of  the 
wage-earner  left  unchanged  the  amount  and  quality  of  his  work,  and 
had  no  influence  on  the  increase  of  numbers  seeking  to  earn  wages, 
the  burden  of  the  tax  would  rest  wholly  on  the  wage-earner.  He 
would,  in  that  case,  give  as  much  and  receive  less,  that  is  to  say,  less 
for  the  use  of  himself  and  family.  In  general,  however,  the  influence 
of  such  a  reduction  in  net  remuneration  would  be  found  in  a  reduc- 
tion in  efficiency  of  the  worker.  Thus  the  cost  of  his  product  would 
be  raised,  and  some  share  of  the  tax  burden  thrown  on  other  classes. 
The  consumers  of  the  goods  would  have  to  pay  more  for  them, 
without  the  entire  additional  payment  becoming  available  for  raising 
the  remuneration  of  the  labor.  A  part  of  such  increased  cost  of 
commodities  might  go  to  provide  an  addition  to  the  laborer's  wages, 
thus  modifying  the  burden  of  the  tax  on  the  wages.  In  view,  too, 
of  the  fact  that  the  net  remuneration  of  labor  influences,  in  general, 
the  rate  of  increase  of  the  numbers  of  the  population,  a  gradual 
modification  of  the  supply  of  labor  might  operate,  as  in  the  case  of 


702  CURRENT  ECONOMIC  PROBLEMS 

capital,  to  produce  the  result  contemplated  above,  namely,  some  in- 
crease of  the  rate  paid  for  labor,  thus  reducing  the  net  burden  of 
the  tax  so  far  as  the  laborer  is  concerned,  and  distributing  a  share 
of  it  among  other  classes  than  wage-earners.  In  so  far  as  the  dif- 
fusion of  the  burden  throws  it  on  consumers  as  such,  the  wage-earn- 
ing classes  will  not  escape  the  burden,  since  they  include  so  large  a 
part  of  the  consuming  public.  Whether  they,  or  other  classes,  will 
be  most  affected  will  turn  on  what  kind  of  commodities  are  most 
affected.  If  it  be  commodities  chiefly  consumed  by  the  wealthier 
classes,  these  classes,  will,  as  consumers,  bear  part  of  the  burden  of 
a  tax  on  wages.  If  it  be  commodities  chiefly  consumed  by  the  wage- 
earning  classes,  these  classes  may  bear  as  consumers  part  of  the 
burden  which  they  throw  off  as  recipients  of  wages. 

As  in  the  case  of  interest,  so  also  in  that  of  wages,  taxation  af- 
fecting special  kinds  of  wages  only  will  influence  the  distribution  of 
labor  in  the  various  industries,  and  be  a  cause  affecting  the  relation 
of  the  wages  in  taxed  and  untaxed  employments  to  each  other. 

343.     The  Burden  of  the  Tariff  Tax^ 

SEE  HOW  TARIFFS  TAX  AMERICAN  WORKMEN 

The  following  is  a  list  of  some  of  the  taxes  which  American 
workmen  have  to  pay : 


Felt  hat 

Taxed 

60  per 

cent 

Leather    bag 

Taxed  40  per  cent 

Matches 

35    " 

<( 

Pipe 

"      60   "      " 

Shoes 

IS   " 

« 

Tools 

"      45   "      " 

Umbrella 

50   " 

« 

Watch 

"      40   "      " 

Woolen  shirt 

100   " 

« 

Leather  belts 

"      40   "      " 

Buttons 

20   " 

« 

Watch  chains 

"      45   "      " 

Qothes 

100   " 

(1 

Collars 

"      45   "      " 

IF  WE  HAVE  TARIFF  REFORM  YOU  WILL  BE  TAXED  IN  THE 
SAME  WAY.     IT  MUST  ALL  COME  OUT  OF  YOUR  WAGES 


SEE  HOW  TARIFFS  TAX  THE  CHILDREN 
IN  AMERICA 

IF  WE  HAVE  TARIFF  REFORM  THE  TAXES  WILL 
FALL  ON  THE  CHILDREN 

The  children's  clothing,  toys,  and  school  things  are  all  taxed  by 
the  tariffs  in  America. 

''Adapted  from  The  Perils  of  Protection,  a  pamphlet  used  by  the  Liberal 
party  in  the  English  Parlfamentary  elections  in  1909-10. 


PROBLEMS  OP  TAXATION  703 

ALL  BOOTS  AND  SHOES  ARE  TAXED  35  PER  CENT 

See  how  the  school  things  are  taxed : 

A  school-bag  is  taxed  45  per  cent  A  school-box        is  taxed  55  per  cent 

A  pencil-case  "     "      40   "      "  A  sponge  "     "      40   " 

A  pencil  "     "      25    "      "  An  exercise  book "     "      25    " 

A  fountain  pen  "     "      30   "      "  A  pen-wiper  "     "      50   "      " 

See  how  the  girls  are  taxed : 

A  girl's  woolen  dress  is  taxed  100  per  cent. 
A  girl's  lace  collar        "     "        60   "      " 
A  girl's  cloth  hat  "     "        60   "      " 

A  girl's  hair  ribbon      "     "        60   "      " 

See  how  the  boys  are  taxed  f 

A  boy's  suit         is  taxed  100  per  cent  A  boy's  cap  is  taxed  60  per  cent 

A  boy's  collar      "     "        40   "      "  A  boy's  tie  "     "      50   "      " 

See  how  the  toys  are  taxed : 

Dolls  are  taxed  35  per  cent  Hoops  are  taxed  35  per  cent 

Balls     "      "      35   "      "  Cycles     "      "      45   "      " 

IF  YOU  VOTE  FOR  TARIFF  REFORM  YOU  WILL  VOTE  TO  TAX 

THE  CHILDREN.     EVEN  THE  LITTLE  ONES  WILL 

NOT  BE  SPARED  BY  THE  TARIFF  TAXERS 


TARIFF  REFORM  MEANS  LEGALISED  ROBBERY 


Tariff  reformers  want  to  tax  goods  which  come  from  abroad,  so 
as  to  increase  the  price  of  the  goods  which  are  made  at  home. 
The  extra  cost  of  the  goods  would  come  out  of  your  pockets. 

THAT  WOULD  BE  ROBBERY 

They  have  this  kind  of  taxation  in  Germany.    What  happens? 

A  German  economist,  Dr.  Lotz,  has  calculated  that  for  every 
penny  the  German  government  gets  from  the  tax  on  iron,  the  Ger- 
man ironmasters  get  elevenpence. 

THAT  IS  ROBBERY 

Germany  taxes  the  bread  and  meat  of  her  people.  Dr.  Gothein 
stated  in  the  German  parliament  that  out  of  every  80s.  which  the 
bread  and  meat  taxes  took  out  of  the  pockets  of  the  German  people, 
the  German  government  only  got  3.?. 


704  CURRENT  ECONOMIC  PROBLEMS 

THAT  IS  ROBBERY 

If  a  free  trade  government  takes  money  out  of  your  pocket,  it 
takes  it  only  to  pay. for  the  necessary  expenses  of  the  government. 
Under  free  trade  every  penny  taken  from  the  people  in  taxes  is  spent 
for  the  people  and  by  the  people. 

A  tariff  reform  government  would  take  money  out  of  your  pocket 
and  put  it  into  the  pockets  of  landlords  and  manufacturers. 

THAT  ALSO  WOULD  BE  ROBBERY 


THE  OBJECT  OF  TARIFF  REFORM  IS  TO  TAX 

THE  POOR  MAN'S  FOOD  IN  ORDER  TO 

FILL  THE  RICH  MAN'S  POCKET 

ARE  YOU  GOING  TO  LET  THEM 
344.     The  Incidence  of  the  Cust9ms  Tax* 

BY  EDWIN  R.  A.  SEUGMAN 

The  elements  that  enter  into  the  equation  of  international  de- 
mand are  so  numerous  and  so  complex  that  an  investigation  of  the 
actual  effects  of  tax  upon  any  one  class  of  commodities  would  re- 
quire for  its  proper  solution,  not  only  an  acquaintance  with  the  details 
of  the  theories  of  the  shifting  of  taxes,  but  also  an  intimate  knowl- 
edge of  all  the  forces  influencing  the  supply  of,  and  the  demand  for, 
the  commodities  affected  in  the  two  countries  immediately  con- 
cerned, as  well  as  in  the  other  countries  which  constitute  the  world- 
market. 

Among  the  considerations  affecting  the  problem  of  the  incidence 
of  a  tax  on  imports,  the  following  are  most  important:  (i)  To 
what  extent  does  the  exporting  country  control  the  supply  of  the 
commodity?  (2)  To  what  extent  does  the  importing  country  con- 
stitute the  sole  market  for  the  commodity?  (3)  To  what  extent 
can  the  commodity  in  question  be  produced  at  home?  (4)  What  is 
the  ratio  of  product  to  cost?  (5)  To  what  extent  is  the  demand 
elastic  ? 

The  imposition  of  the  tax  may  be  considered,  in  ordinary  cases, 
as  an  addition  to  the  cost  of  production,  and  as  such  increases  the 
price  of  the  article  in  the  importing  country  by  the  amount  of  the 

"Adapted  from  The  Shifting  and  Incidence  of  Taxation,  374-378.  Copy- 
right by  Columbia  University  Press  (1910). 


PROBLEMS  OF  TAXATION  705 

duty.  Under  such  conditions  it  is  true  that  "the  tariff  is  a  tax,"  and 
that  it  falls  on  the  consumer.  The  conclusion  is  based  on  the  assump- 
tion that  the  producers  do  not  bear  any  part  of  the  tax;  that,  al- 
though the  sales  necessarily  fall  off  more  or  less,  according  as  the 
demand  is  sensitive  or  not,  by  reason  of  the  increased  price  the  pro- 
ducers find  an  outlet  for  their  goods  in  some  other  country. 

The  assumption,  however,  is  not  always  correct.  It  may  happen 
that  the  importing  country  constitutes  either  the  sole  market  for  the 
commodity,  or  such  an  important  part  of  the  market  that  the  pro- 
ducer finds  it  difficult  to  extend  his  sales  in  other  countries.  To  the 
extent  that  this  is  true,  the  producer  finds  it  to  his  interest  to  avoid 
any  substantial  diminution  of  demand  in  his  chief  market.  This  can 
be  accomplished,  however,  only  by  consenting  to  bear  a  portion  of 
the  tax  himself.  If  the  importing  country  constitutes  the  sole  market 
for  the  commodity  and  if  the  demand  is  very  elastic,  the  conditions 
are  most  favorable  to  the  consumer  in  the  importing  country.  But 
from  this  very  exceptional  case,  where  the  producer  bears  the  larger 
share  of  the  tax,  down  to  the  ordinary  case,  where  the  consumer 
bears  the  whole  of  it,  there  are  all  kinds  of  gradations. 

Another  very  important  element  in  the  problem  is  the  extent  to 
which  the  home  production  in  the  importing  country  may  fill  the  gap 
caused  by  the  diminution  in  the  imports  from  the  exporting  country. 
The  ordinary  reasoning  that  "the  tariff  is  a  tax"  is  based  on  the  as- 
sumption that  the  equilibrium  will  be  reached  when  the  decreased 
supply  from  the  foreign  country  sells  at  the  increased  price.  If  the 
home  country  cannot  produce  the  article  at  all,  this  assumption  is 
valid.  But  if  the  home  country  has  hitherto  been  prevented  from 
producing  the  article  solely  because  the  price  has  been  too  low  to 
admit  of  profits,  the  degree  to  which  home  production  can  round 
out  the  supply  depends  entirely  upon  the  extent  to  which  the  price 
rises.  Suppose  that  an  imported  commodity  can  be  produced  abroad 
so  as  to  sell  in  the  importing  country  for  $10.00,  while  the  article 
can  be  produced  in  the  importing  country  only  at  an  initial  cost  of 
$12.50.  If  a  tax  of  $2.00  per  unit  is  imposed,  the  price  will  rise  to 
$12.00  and  the  demand  will  fall  off.  But,  suppose  the  importing 
country  can  now  furnish  part  of  the  supply,  and  because  of  the 
larger  output  will  be  able  to  produce  the  article  for  $11.00.  Despite 
the  tax  of  $2.00,  the  price  cannot  rise  above  $11.00,  the  demand 
will  not  fall  off  as  much  as  before,  and  the  tax  will  be  divided  be- 
tween the  foreign  producer  and  the  home  consumer. 

The  extent  to  which  the  home  producer  can  capture  a  part  of  the 
market  depends,  among  other  things,  upon  the  ratio  of  product  to 
cost.    If  the  product  is  produced  at  home  under  the  law  of  increasing 


7o6  CURRENT  ECONOMIC  PROBLEMS 

cost,  which  is  the  usual  case  in  competitive  industries,  the  chance  of 
the  home  producer  is  not  so  good;  if  under  the  law  of  decreasing 
cost,  which  as  we  know  implies  a  trend  toward  monopoly,  his  chances 
are  better.  But  it  is  obvious  that  cases  may  arise  where  it  is  not  true 
that  "the  tariff  is  a  tax"  in  the  sense  that  the  whole  burden  of  the 
import  duty  is  necessarily  borne  by  the  consumer.  The  greater  the 
supply  that  is  captured  by  the  home  producer,  the  less  will  be  the 
proceeds  of  the  tax.  If  the  foreign  product  is  entirely  shut  out,  the 
revenue  will  be  zero.  If,  in  the  extreme  case  mentioned,  the  home 
producer  supplies  the  entire  market  at  a  price  of  $12.00,  the  govern- 
ment loses  its  whole  revenue  from  the  tax,  and  the  consumers  lose 
the  entire  amount  of  the  tax  through  the  increase  in  price.  If,  on 
the  other  hand,  the  price  of  the  home  product  after  the  shutting  out 
of  foreign  competition  and  the  development  of  improved  processes 
at  home  can  be  finally  brought  down  to  a  point  lower  than  $10.00, 
the  revenue  will  indeed  still  be  zero,  but  the  consumers  will  lose 
nothing,  and  the  community  will  have  gained  the  advantages  result- 
ing from  an  increase  in  industry. 

D.     "UNSCIENTIFIC"  TAXATION 
345.     Defects  of  the  General  Property  Tax^ 

There  are  two  reasons  why  the  general  property  tax  has  failed 
in  operation :  First,  because  under  modern  conditions  it  cannot  be 
enforced  effectively;  secondly,  because  of  a  more  or  less  conscious 
recognition  of  the  fact  that  strict  enforcement  would  result  in  a  still 
greater  injustice  than  now  prevails. 

The  practical  difficulties  in  the  way  of  enforcing  the  general 
property  tax  are  well  known.  Under  modern  conditions  much  prop- 
erty that  is  valuable  to  its  individual  owner  is  in  a  form  that  per- 
mits of  easy  evasion.  The  paper  evidences  of  the  ownership  of 
property  which  the  general  property  tax  system  seeks  to  reach  in 
the  hands  of  the  owner,  can  readily  be  concealed,  or  there  can  be  a 
colorable  transfer  of  title.  Credits  and  debts  can  be  juggled.  Visible 
personal  property  can  be  temporarily  transferred  into  another  dis- 
trict or  state.  Where  the  taxpayer  makes  his  own  return,  he  can 
undervalue  or  omit  some  of  his  property.  If  the  assessor  tries  to 
inventory  the  property,  he  may  overlook  much  of  it  and  fail  to  esti- 
mate the  value  of  that  which  he  does  find. 

•Adapted  from  "Report  of  Committee  on  Causes  of  Failure  of  General 
Property  Tax,"  in  State  and  Local  Taxation,  Fourth  International  Confer- 
ence, 307-310.     Copyright  by  National  Tax  Association  (1910). 


PROBLEMS  OF  TAXATION  707 

Then  there  is  the  ever-present  feeling  which  exerts  a  conscious 
or  unconscious  influence  with  the  average  administrator,  that  he 
drives  away  productive  capital  by  the  strict  enforcement  of  laws 
which  hinder  the  business  interests  of  his  community  in  competition 
with  those  in  localities  where  greater  "leniency"  is  shown. 

Public  opinion  almost  invariably  recognizes  the  unfairness  of 
taxing  all  property  by  the  same  rule  and  at  the  same  rate,  whenever 
a  strict  enforcement  of  the  law  is  attempted.  The  abstract  demand 
for  the  taxation  of  all  property  alike  then  gives  place  to  concrete 
indignation  over  the  actual  results.  It  is  always  some  unknown 
"they"  who  ought  to  be  made  to  pay  on  everything  "they"  own.  But 
the  property  which  the  assessor  does  find  often  is,  in  the  opinion  of 
its  owners,  either  greatly  overvalued,  or  has  been  "singled  out,"  or 
is  otherwise  quite  improperly  on  the  rolls.  This  attitude  of  the 
average  property-owner  is  an  unconscious  resentment  at  the  unfair- 
ness of  the  general  property  tax  theory.  The  attempt  to  tax  all 
property  at  a  uniform  standard  of  valuation  and  at  the  same  rate, 
regardless  of  its  special  characteristics,  earning  power,  or  the  benefits 
derived  from  the  expenditures  of  government,  violates  the  primary 
rules  of  just  taxation  and  offends  the  natural  sense  of  justice. 

The  two  theories  of  taxation  most  widely  accepted  by  economists 
are:  One,  that  each  individual  should  be  taxed  in  proportion  to  his 
ability  to  pay;  the  other,  that  taxes  should  be  levied  in  proportion 
to  benefits  or  privileges  received  from  government.  However  the 
advocates  of  either  theory  may  differ,  they  will  agree  that  at  least 
taxation  should  conform  to  one  of  these  two  theories  in  order  to 
approach  fairness.  The  general  property  tax  conforms  to  neither. 
It  establishes  an  arbitrary  measure  for  taxation  that  bears  no  rela- 
tion either  to  ability  to  pay  or  to  benefits  received. 

Apart  from  these  theoretical  objections,  there  is  a  practical  in- 
justice inseparable  from  strict  enforcement.  The  fact  that  the  real 
estate  tax  has  been  enforced  regularly,  has  led  to  an  amortization  of 
the  average  tax.  The  rental  received  from  real  estate  is  gross  ;  there- 
fore the  purchaser  deducts  the  tax  and  finds  the  net  income  before 
he  purchases,  thus  securing  for  his  investment  the  current  rate  of 
return,  tax-free.  The  investor  in  securities  usually  pays  a  purchase 
price  which  is  fixed  in  a  country-wide  market,  and  is  calculated  on 
the  assumption  that  the  investment  will  escape  taxation,  and  that 
his  whole  income  will  therefore  be  net.  When  by  spasmodic  en- 
forcement of  the  law,  or  disclosure  of  personalty  in  a  probate  court, 
securities  that  bear,  say,  4  per  cent  interest  are  made  subject  to  a  2 
or  3  per  cent  tax  on  their  market  or  face  value,  the  moral  sense  re- 
volts at  this  practical  confiscation  of  so  large  a  share  of  the  income. 


7o8  CURRENT  ECONOMIC  PROBLEMS 

In  the  case  of  tangible  property  such  as  merchandise,  the  results 
of  general  evasion  are  similar.  Selling  prices  are  fixed  on  the  as- 
sumption that  the  business  will  largely,  if  not  wholly,  escape  taxa- 
tion. The  few  merchants  who  are  caught  find  themselves  taxed  out 
of  all  proportion  to  others,  and  are  unable  to  recoup  themselves  for 
the  tax  by  adding  to  prices,  because  of  the  competition  with  those 
who  escape,  or  with  non-residents — who  may  be  wholly  relieved  from 
such  liability  in  their  own  states. 

To  sum  up,  your  committee  finds : 

That  the  general  property  tax  system  has  broken  down. 

That  it  has  not  been  more  successful  under  strict  administration 
than  where  the  administration  is  lax. 

That  in  the  states  where  its  administration  has  been  the  most 
stringent,  the  tendency  of  public  opinion  and  legislation  is  not  toward 
still  more  stringent  administration,  but  toward  a  modification  of  the 
system. 

That  the  same  tendency  is  evident  in  the  states  where  administra- 
tion has  been  more  lax. 

That  the  states  which  have  modified  or  abandoned  the  general 
property  tax  show  no  intention  of  returning  to  it. 

That  in  the  states  where  the  general  property  tax  is  required  by 
constitutional  provisions,  there  is  a  growing  demand  for  the  repeal 
of  such  provisions. 

We  conclude,  therefore,  that  the  failure  of  the  general  property 
tax  is  due  to  the  inherent  defects  of  the  theory ;  that  even  measurably 
fair  and  effective  administration  is  unattainable ;  and  that  all  at- 
tempts to  strengthen  such  administration  serve  simply  to  accentuate 
and  to  prolong  the  inequalities  and  unjust  operation  of  the  system. 

346.     Multiple  Taxation" 
BY  Theodore;  sutro 

No  one  doubts  the  fact  of  double  and  multiple  taxation  in  our 
system,  but  nevertheless  it  will  be  useful  to  point  out  some  concrete 
examples. 

Certain  logs,  cut  on  lands  in  Wisconsin  owned  by  a  Minnesota 
corporation,  were  hauled  to  a  river  and  piled  on  the  ice  to  await  the 
opening  of  the  river,  that  they  might  be  floated  down  to  Minnesota 
to  be  there  manufactured  into  lumber.  Under  a  statute  of  Wiscon- 
sin these  logs  were  assessed  in  the  month  of  April  for  taxation  for 

"Adapted  from  "Double  and  Multiple  Taxation,"  in  State  and  Local 
Taxation,  Second  International  Conference,  548-552.  Copyright  by  National 
Tax  Association  (1909). 


PROBLEMS  OF  TAXATION  709 

the  year  commencing  on  the  last  Monday  in  June,  on  the  claim  that 
the  situs  of  the  logs  was  in  Wisconsin.  It  appears  that  under  a  law 
of  the  state  of  Minnesota  the  same  logs  were  also  assessed  against 
the  Minnesota  corporation,  and  taxed  there  for  part  or  all  of  the 
same  period.  The  Wisconsin  court  admitted  that  this  would  result 
in  double  taxation  of  the  same  article  in  the  same  year  and  said: 
"Either  it  is  lawful  to  tax  the  logs  in  Wisconsin  or  it  is  not.  If 
lawful  at  all,  the  mere  circumstance  that  the  owner,  after  the  tax  is 
levied,  voluntarily  takes  them  into  another  state,  where  they  are 
also  taxed,  can  have  nothing  to  do  with  the  question  of  the  constitu- 
tionality of  the  tax  here."^^ 

Here  is  a  flagrant  case  of  double  taxation,  but  we  may  go  farther. 
Let  us  assume  that  the  Minnesota  corporation  had  a  permanently 
established  agency  in  the  city  of  New  York,  and  that  it  sent  these 
logs,  subsequent  to  their  taxation  both  in  the  states  of  Minnesota 
and  Wisconsin,  to  the  city  of  New  York,  where  they  would  arrive 
before  the  tax  period  of  Wisconsin  and  Minnesota  had  expired,  and 
would,  within  that  period,  reach  and  be  in  the  city  of  New  York  on 
the  subsequent  second  Monday  of  January.  They  would  thereupon 
become  taxable  for  the  third  time  in  the  city  of  New  York. 

Let  us  assume  further  that  subsequently,  say  in  the  month  of 
March,  they  were  sawed  into  lumber  in  the  state  of  New  York,  and 
were  in  or  about  the  month  of  April  shipped  to  another  agency  of 
the  same  Minnesota  Corporation,  in  the  state  of  New  Jersey,  and 
that  this  lumber  was  in  the  hands  of  the  New  Jersey  agency  on  the 
twentieth  day  of  May,  on  which  date  assessments  for  taxation  are 
made  in  that  state. 

We  should  then  have  this  result :  that  these  logs  were  assessed  in 
Wisconsin  for  the  whole  period  of  one  year  from  the  last  Monday 
of  June,  for  nearly  the  whole  of  that  period  also  in  the  state  of 
Minnesota,  from  the  period  from  at  least  the  second  Monday  in 
January  until  the  last  Monday  of  June  also  in  New  York,  and  from 
the  period  from  the  twentieth  of  May  until  the  last  Monday  of 
June  in  New  Jersey. 

On  the  other  hand,  a  competing  Wisconsin  corporation  or  indi- 
vidual growing  and  cutting  these  logs  into  lumber  in  that  state  and 
disposing  of  this  lumber  before  the  expiration  of  a  year  from  the 
last  Monday  of  June  would  have  been  taxed  for  the  logs  or  their 
equivalent  in  lumber  only  a  single  time  for  the  same  tax  period,  for 
which  the  Minnesota  corporation  would  have  been  taxed  four  times. 

**C.  N.  Nelson  Lumber  Co.  v.  Town  of  Loraine,  22  Fed.  54  (1884). 


7IO  CURRENT  ECONOMIC  PROBLEMS 

Certain  mortgages  on  lands  in  Oregon  held  by  a  California  cor- 
poration were  taxed  in  Oregon,  under  an  Oregon  statute,  which  pro- 
vided that  "mortgages  of  land  shall  for  the  purpose  of  assessment 
and  taxation  be  deemed  to  be  real  estate."  Under  the  laws  of  Cali- 
fornia the  same  mortgages  were  taxable  against  the  California  cor- 
poration for  a  part  of  the  same  period.^^  This  illustration  also  we 
might  carry  farther  by  assuming  that  before  the  tax  period  in  Cali- 
fornia had  expired  the  mortgages  had  been  assigned  by  the  Cali- 
fornia corporation  to  a  resident  of  New  York  City.  If  held  by  that 
resident  on  the  second  Monday  of  January  in  the  city  of  New  York, 
the  same  mortgages  would  have  been  subject  to  another  tax  for  the 
same  tax  period. 

Money  had  been  loaned  by  a  resident  of  Kentucky  to  a  firm  in 
Ohio.  It  was  taxed  in  both  states.  The  court  said:  "Borrowed 
capital  in  Ohio  is  taxable  as  the  borrower's  property  there,  and  the 
debt  due  to  the  lender  in  Kentucky  is  taxable  here  as  her  property" 
(i.  e.,  the  property  of  the  minor  daughter  of  the  deceased  lender). 
"In  this  case,  the  ward's  right  to  the  money  in  Ohio  is  a  portion  of 
the  wealth  of  Kentucky,  and  ought  to  contribute  to  the  burdens  of 
the  government  which  protects  her;  and  if  it  could  escape  contribu- 
tion by  lending  it  in  Ohio,  a  knowledge  of  that  fact  would  encourage 
the  exhaustive  deportation  of  the  money  of  Kentucky  to  augment 
the  wealth  of  some  other  state."^^ 

E.     TENDENCIES  IN  TAXATION    ' 

347.     The  Massachusetts  Corporation  Tax^* 

In  Massachusetts  there  is  general  provision  for  the  taxation  of 
corporations  upon  their  "corporate  excess."  Although  experience 
has  shown  that  each  class  of  corporations  requires  special  treatment, 
and  many  modifications  have  been  made,  the  central  idea — corporate 
excess — is  preserved  throughout. 

In  ascertaining  the  corporate  excess,  this  general  provision  re- 
quires an  annual  return  by  the  corporation  to  the  tax  commissioner 
showing  the  amount  and  market  value  of  its  capital  stock  and  assets, 
and  also  the  names  of  the  stockholders,  with  their  holdings  and 
addresses.  He  estimates  the  entire  value  of  the  capital  stock  from 
this  return.     This  estimate  is  denominated  the  value  of  the  "cor- 

^^ Johnson  v.  De  Bary-Basa  Merchant's  Line,  27  L.R.A.  518;  Savings  and 
Loan  Soc.  v.  Multnomah  County,  60  Fed.  31   (1894). 

^'Thomas  v.  Mason  Co.,  67  Ky,  135  (Court  of  Appeals,  1868). 
^*Adapted  from  the  Report  of  the  Commission  of  Corporations  on  the 
Taxation  of  Corporations,  I,  89-93  (1909). 


PROBLEMS  OF  TAX  A  TION  7 1 1 

porate  franchise."  Deduction  is  made  for  the  value  of  real  estate 
and  machinery  taxed  locally,  and  the  remainder,  called  the  "corpo- 
rate excess,"  is  taxed  at  the  average  rate  of  taxation  for  the  whole 
state  during  the  last  three  years. 

Such  proportion  of  the  tax  collected  by  the  state  as  corresponds 
to  the  amount  of  stock  owned  within  the  state  is  returned  to  the 
towns  and  cities  in  which  the  stockholders  reside,  in  proportion  to 
the  number  of  shares  there  owned.  The  portion  of  the  tax  which 
represents  the  tax  on  shares  of  stock  held  outside  the  state  goes  to 
the  state.  Under  this  arrangement  it  is  estimated  that  about  20  per 
cent  of  the  tax  accrues  to  the  state.  Shares  in  domestic  corporations 
are  not  taxed  to  their  owner  as  personal  property.  Bonds  are 
taxable. 

"Business  corporations"  were  originally  included  under  the  tax 
on  corporate  excess  above  described ;  but  owing  to  the  effect  of  that 
tax  in  compelling  Massachusetts  corporations  to  give  up  their  char- 
ters and  incorporate  under  laws  of  other  jurisdictions,  it  was  found 
necessary  to  place  limitations  on  the  assessment  of  the  corporate 
excess  of  such  corporations.  In  1903  "An  act  relative  to  business 
corporations"  was  passed,  which  law  relates  particularly  to  manu- 
facturing and  mercantile  corporations  as  distinguished  from  financial 
and  transportation  and  transmission  corporations. 

This  law  provides  that  domestic  corporations  having  capital  stock 
and  established  for  the  purpose  of  carrying  on  business  for  profit  be 
taxed  as  follows :  The  corporation  makes  an  annual  return  to  the 
Tax  Commissioner,  from  which  he  estimates  the  entire  value  of 
capital  stock  and  this  is  denominated  the  value  of  the  corporate 
franchise.  There  is  a  deduction  of  the  value  of  real  estate  and 
machinery  subject  to  local  taxation  within  the  state,  and  also  of  the 
value  of  property  which  is  in  another  state  or  country  and  is  subject 
to  taxation  therein.  No  deduction  is  made  for  securities  which  would 
be  taxable  if  owned  by  a  resident  natural  person,  but  if  such  securi- 
ties would  not  be  taxable  in  the  hands  of  a  natural  person  they  are 
deducted.  On  the  net  valuation  or  corporate  excess  thus  reached 
the  state  directly  imposes  a  tax  at  the  average  rate  of  all  the  cities 
and  towns  in  the  state  for  the  last  three  years.  The  tax,  however, 
is  not  to  exceed  a  tax  at  this  rate  on  an  amount  20  per  cent  in  excess 
of  the  value  of  the  real  estate,  macliinery,  and  merchandise,  and 
taxable  securities ;  nor  is  it  to  be  less  than  one-tenth  of  i  per  cent  of 
the  market  value  of  the  capital  stock.  The  tax  is  paid  by  the  domes- 
tic corporation  to  the  state  treasurer.  The  return  also  gives  a  list 
of  stockholders,  with  their  holdings  and  addresses. 


712  CURRENT  ECONOMIC  PROBLEMS 

The  Tax  Commissioner  in  determining  the  value  of  the  corporate 
franchise  of  a  business  corporation  may  not  take  into  consideration 
any  debts  of  the  corporation,  unless  the  returns  contain  a  sworn 
statement  that  no  part  of  such  debt  was  incurred  for  the  purpose  of 
reducing  the  amount  of  taxes. 

Beginning  with  1909,  all  of  the  tax  apportioned  to  non-resident 
stock  remains  with  the  state  and  the  rest  of  this  tax  is  distributed, 
one-half  to  the  cities  and  towns  where  the  tangible  property  of  the 
corporation  is  located  and  the  other  half  to  the  cities  and  towns 
where  the  stockholders  live.  Shares  in  companies  paying  this  tax 
are  not  taxed  to  the  owner  as  personal  property.  Bonds  of  these 
companies  are  so  taxed. 

The  tax  upon  railroad  companies  is  on  the  same  basis  as  the  tax 
on  corporations  generally,  namely,  "corporate  excess."  Provision 
is  made  for  a  proportionate  assessment  of  the  tax  where  the  line  of 
the  road  extends  outside  the  state.  Every  railroad  corporation  or- 
ganized in  the  state  returns  a  complete  list  of  its  stockholders,  with 
residences  and  number  of  shares,  and  also  a  statement  in  detail  of 
the  works,  structures,  real  estate,  and  machinery  owned  by  the  cor- 
poration and  subject  to  local  taxation,  with  location  and  value. 
Every  railroad  corporation,  whether  organized  in  this  state  or  else- 
where, returns  a  statement  of  the  whole  length  of  its  lines,  and  of 
so  much  of  the  length  of  its  lines  as  is  outside  the  state. 

The  Tax  Commissioner  ascertains  from  the  returns  or  otherwise 
the  true  market  value  of  all  shares  of  every  railroad  corporation, 
which  shall  be  taken  as  the  true  value  of  its  corporate  franchises. 
From  this  is  deducted,  in  the  case  of  both  foreign  and  domestic  cor- 
porations, so  much  of  the  value  of  its  capital  stock  as  is  proportional 
to  the  length  of  that  part  of  its  lines,  if  any,  lying  without  the  state, 
and  also  the  value  of  its  real  estate  and  machinery  subject  to  local 
taxation  within  the  state,  for  which  purpose  the  assessed  value  may 
be  taken  as  the  true  value.  Upon  the  valuation  so  found  the  railroad 
pays  to  the  state  a  tax  at  the  average  rate  throughout  the  state. 

No  taxes  are  assessed  locally  upon  the  shares  of  any  railroad 
which  pays  a  tax  on  its  corporate  excess.  Such  proportion  of  the 
tax  collected  of  a  railroad  corporation  as  corresponds  to  the  pro- 
portion of  its  stock  owned  by  residents  of  the  state  is  distributed 
to  the  towns  in  which  such  owners  respectively  reside.  Bonds  of 
railroad  companies  are  taxable  to  the  owner  as  personal  property. 


PROBLEMS  OF  TAXATION  713 

348.     The  Federal  Income  Tax" 

BY  EDWIN  R.  A.  SELIGMAN 

The  enactment  of  the  income-tax  law  of  October  3,  1913,  marks 
a  new  stage  in  the  history  of  American  finance.  The  American  tax 
was  designed  from  the  very  outset  as  an  integral  and  permanent 
part  of  the  fiscal  arrangements. 

The  chief  argument  which  was  responsible  for  the  passage  of 
the  Sixteenth  Amendment  and  for  the  enactment  of  the  law  was  that 
wealth  is  escaping  its  due  share  of  taxation.  Again  and  again  in  the 
course  of  the  discussion  attention  was  called  to  the  fact  that  our 
federal  system  of  taxes  on  expenditure  puts  an  undue  burden  on  the 
small  man;  and  when  the  objection  was  made  that  the  principle  of 
ability  to  pay  is  recognized  in  state  and  in  local  taxation,  the  ready 
answer  was  found  that  in  actual  practice  our  state  and  local  revenue 
systems  fail  almost  completely  to  reach  those  taxpayers  who  can 
best  afford  to  contribute  to  the  public  burdens. 

Under  the  provisions  of  the  statute  the  tax  is  imposed  upon  the 
entire  income  of  every  American  citizen,  whether  residing  at  home 
or  abroad,  as  well  as  upon  that  of  every  person  residing  in  the  United 
States  although  not  a  citizen  thereof.  In  the  case  of  non-citizens  of 
the  United  States  residing  abroad,  the  tax  is  assessed  upon  the  in- 
come from  all  property  owned,  and  from  every  business,  trade,  or 
profession  carried  on,  in  the  United  States. 

The  law  applies  not  only  to  individuals  but  to  corporations.  The 
income  tax  is  payable  by  every  corporation,  joint-stock  company,  or 
association,  and  every  insurance  company  organized  in  the  United 
States,  with  a  few  exceptions. 

It  is  easy  to  say  that  income  should  be  taxed,  but  it  is  not  so  easy 
to  define  what  is  meant  by  income.  The  law  of  1913  states  that  net 
income  shall  include  gains,  profits,  and  incomes  derived  from  sal- 
aries, wages,  or  compensation  for  personal  services  of  whatever 
kind,  and  in  whatever  form  paid;  or  from  professions,  vocations, 
businesses,  trade,  commerce,  or  sales  or  dealings  in  property,  whether 
real  or  personal,  growing  out  of  the  ownership  or  use  of,  or  inter- 
ests in,  real  or  personal  property ;  also  from  interest,  rents,  dividends, 
securities,  or  the  transaction  of  any  lawful  business  carried  on  for 
gain  or  profit,  or  gains  or  profits  and  income  derived  from  any  source 
whatever,  including  the  income  from,  but  not  the  value  of,  property 
acquired  by  gift,  bequest,  devise,  or  descent, 

^'Adapted  from  "The  Federal  Income  Tax,"  in  the  Political  Science 
Quarterly,  XXIX,  1-4  il,  13-18.  Copyright  (1914). 


714  CURRENT  ECONOMIC  PROBLEMS 

In  discussing  the  question  of  tax  rates  the  two  chief  problems 
are  those  of  exemption  and  of  graduation. 

The  most  important  point  to  be  noted  under  the  head  of  ex- 
emption is  the  fact  that  the  tax  appHes  to  individual  incomes  only 
when  they  exceed  $3,000.  In  this  bill,  as  originally  drafted,  the 
exemption  was  put  at  $4,000.  In  the  course  of  the  discussion,  how- 
ever, and  partly  as  a  concession  to  the  feeling  that  the  limit  was  ex- 
cessive, it  was  reduced  to  $3,000,  with  additional  exemptions  of  $500 
or  $1,000  for  children.  In  the  final  draft,  while  the  figure  of  $3,000 
was  retained,  the  exemption  for  children  was  eliminated  and  was 
replaced  by  an  additional  exemption  of  $1,000  for  a  married  couple. 
A  total  exemption,  however,  of  $4,000  only  is  permitted  in  the  case 
of  aggregate  income  of  husband  and  wife  when  living  together.  It 
is  to  be  noted,  moreover,  that  the  exemption  applies  to  the  first  three 
or  four  thousand  dollars  respectively  of  any  amount  of  income ;  that 
is  to  say,  three  or  four  thousand  dollars  respectively  are  always  to 
be  deducted  from  the  net  income,  in  order  to  reach  the  taxable  in- 
come. 

The  consideration  of  tax  rates  involves  not  only  the  question  of 
exemption,  but  that  of  graduation.  It  is  significant  that  the  principle 
of  progressive  taxation  evoked  almost  no  discussion.  The  legiti- 
macy of  the  theory  was  taken  for  granted.  In  considering  the  ques- 
tion of  graduation,  only  two  difficulties  confronted  the  framers  of 
the  bill.  The  one  was  how  to  make  a  workable  system  of  progressive 
taxation  harmonize  with  the  administrative  methods  employed ;  the 
other  how  to  oppose  with  success  the  demands  of  the  radicals. 

The  former  difficulty  is  connected  with  the  principle  of  stoppage 
at  source,  to  be  discussed  below.  It  is  clear  that  if  a  tax  is  paid  at 
the  source  by  the  income-payer,  rather  than  by  the  income-recipient, 
it  is  not  easy  to  introduce  a  graduated  scale.  The  bonds  of  a  cor- 
poration, the  tax  on  the  income  of  which  is  withheld  by  the  corpo- 
ration, may  be  owned  by  a  person  of  very  small  or  of  very  large 
total  income. 

This  problem  had,  however,  recently  been  solved  in  England, 
where  a  uniform  rate  is  imposed  upon  all  taxpayers,  and  is  assessed 
on  the  principle  of  stoppage  at  source.  This  remains  the  backbone  of 
the  tax.  Then  on  all  individual  incomes  above  a  certain  figure,  a 
so-called  super-tax  is  levied  upon  the  income  as  a  whole.  The  same 
plan  has  been  adopted  in  the  new  American  law.  The  uniform  tax 
levied  upon  all  incomes,  primarily  by  the  method  of  stoppage  at 
source,  is  called  the  normal  tax,  and  is  assessed  at  the  rate  of  1  per 
cent.  The  extra  tax  is  called  the  additional  tax  or  surtax  and  is 
assessed  on  the  entire  income  of  individuals,  according  to  a  graduated 


PROBLEMS  OF  TAXATION 


715 


scale.  The  advantage  of  this  ingenious  scheme  is  that  the  constit- 
uent parts  of  the  income  of  any  individual  will  be  reached  in  large 
measure  by  the  normal  tax,  and  in  such  a  way  that  the  government 
will  be  able  to  ascertain  the  facts.  The  returns  made  by  individuals 
for  the  additional  tax  can,  to  a  considerable  degree,  thus  be  checked 
up,  and  the  fiscal  interest  of  the  government  be  protected.  The  pro- 
tection is,  however,  not  complete;  for,  the  principle  of  stoppage  at 
source  does  not  apply  to  all  incomes  within  the  United  States,  and 
implies  only  in  an  imperfect  way  to  incomes  received  abroad.  To  a 
very  large  extent,  however,  the  protection  is  undoubted.  Thus  it 
may  be  said  that  the  old  problem  of  the  incompatibility  of  graduated 
taxation  with  stoppage  at  the  source  has  been  attacked  with  a  fair 
prospect  of  success. 

The  other  difficulty  with  which  the  framers  of  the  bill  had  to 
cope  was  the  danger  of  an  exaggerated  application  of  the  progressive 
scale.  In  the  original  bill,  the  clause  relating  to  the  "additional"  tax 
was  so  framed  as  to  impose  i  per  cent  on  incomes  from  $20,000  to 
$50,000,  2  per  cent  on  incomes  from  $50,000  to  $100,000,  and  3  per 
cent  on  incomes  above  $100,000.  In  the  course  of  the  discussion, 
however,  many  amendments  were  introduced  calling  for  much 
higher  scales.  The  general  feeling  was  that  the  graduated  scale 
contained  in  the  bill  was  not  high  enough.  For  instance,  Senator 
La  Follette  proposed  a  scale  which  ran  up  to  10  per  cent.  As  a  re- 
sult of  the  discussion  the  Finance  Committee  of  the  Senate  saw 
that  some  concession  was  inevitable.  Under  the  law  as  it  was 
finally  enacted,  the  rates  of  the  "additional"  tax  are  as  follows: 


Per  cent 

On  Amount  Exceeding 

And  Not  Over 

I r .  .  .  . 

$   20,000 

50,000 

75,000 

100,000 

250,000 

500,000 

$  50,000 

7S,ooo 

100,000 

2 

? 

A 

250,000 
500,000 

C 

6 

The  maximum  rate  of  the  income  tax  as  a  whole,  therefore, 'under 
the  new  law,  is  somewhat  under  7  per  cent.  '  This  is  somewhat  lower 
than  either  the  English  maximum  or  that  of  the  recent  German 
Wehrsteuer. 

The  provisions  in  the  new  law  which  deal  with  the  methods  of 
assessment  and  collection  involve  a  fundamental  departure  from  the 
theory  of  all  preceding  income  taxes  in  the  United  States.  As 
has  been  frequently  pointed  out,  the  two  chief  types  of  income  tax 


7i6  CURRENT  ECONOMIC  PROBLEMS 

are  the  personal  or  lump-sum  tax,  where  everyone  is  compelled  to 
make  a  return  of  his  entire  income  from  whatever  source  derived, 
and  the  stoppage-at-source  tax,  the  theory  of  which  is  that  it  should 
be  collected  from  the  person  or  agency  paying  the  income,  rather 
than  from  the  individual  who  receives  it.  The  argument  in  favor 
of  payment  at  source  is  the  double  one  of  protecting  the  honest 
taxpayer,  and  of  safeguarding  the  interests  of  the  Treasury.  There 
is  little  doubt  that  a  purely  personal  lump-sum  income  tax  resting 
primarily  on  the  declaration  of  the  individual  would  be  as  much  of 
a  failure  in  the  United  States  as  was  the  original  income  tax  in 
England  or  the  American  income  tax  in  the  years  subsequent  to  the 
Civil  War.  It  was  to  avoid  these  evils  that  England  adopted  the 
principle  of  stoppage  at  source  to  a  certain  extent  at  least,  and  that 
some  other  countries  have  in  a  minor  degree  followed  this  example. 
It  was  reserved,  however,  for  the  United  States  to  apply  the  prin- 
ciple in  a  more  thoroughgoing  fashion  than  is  the  case  anywhere  else. 
The  law  provides  that  "all  persons  or  firms,  co-partnerships, 
companies,  corporations,  joint-stock  companies  or  associations,  in 
whatever  capacity  having  control,  receipt,  disposal,  or  payment  of 
fixed  or  determinable  annual  or  periodical  gains,  profits,  and  income 
of  another  person,  subject  to  tax"  are  required  to  deduct  and  with- 
hold the  annual  tax  of  i  per  cent  from  all  "interest,  rent,  salaries, 
wages,  premiums,  annuities,  compensation,  remuneration,  emolu- 
ments, or  other  fixed  or  determinable  annual  gains,  profits,  and  in- 
come of  another  person  exceeding  $3,000  for  any  taxable  year."  In 
the  case  of  payment  of  interest  on  bonds  and  mortgages  or  of  trusts 
or  similar  obligations  of  corporations,  as  well  as  in  the  case  of  col- 
lections of  interest  and  dividends  on  foreign  bonds  and  stocks  not 
payable  in  the  United  States,  the  tax  is  to  be  deducted  on  all  sums 
irrespective  of  whether  or  not  the  payments  amount  to  $3,000.  The 
obligation  to  withhold  the  tax  is  not  applicable  to  three  cases.  First, 
it  does  not  apply  to  the  dividends  on  the  stock  of  corporations  for 
the  reason  that  all  such  corporations  are  subject  to  the  tax  on  their 
net  income,  irrespective  of  whether  they  pay  out  this  income  as  divi- 
dends or  allow  it  to  accumulate  as  surplus  and  undivided  profits. 
Secondly,  the  obligation  to  withhold  the  tax  does  not  apply  to  the 
interest  on  bonds,  mortgages,  equipment-trust,  receivers'  certificates, 
or  similar  obligations  of  which  the  bona  fide  owners  are  citizens  of 
foreign  countries  and  residing  abroad.  Thirdly,  it  does  not  apply  to 
the  payments  to  a  corporation,  the  reason  for  this  obviously  being 
that  all  corporations  are  required  to  file  a  complete  return  of  all  of 
their  income,  and  that  the  books  of  the  corporation  are  open  to  in- 
spection by  the  revenue  authorities. 


PROBLEMS  OF  TAXATION  717 

349.     Public  Capitalization  of  the  Inheritance  Tax*' 

BY  ALVIN  S.  JOHNSON 

There  are  new  burdens  to  be  assumed,  and  tremendous  ones,  just 
over  the  present  horizon  of  the  state.  Pensions  for  the  superan- 
nuated and  disabled,  relief  for  the  sick,  reformation  of  the  outcast, 
subsidies  for  indigent  motherhood,  conservation  of  child  life  and 
of  the  human  resources  we  now  neglect  through  parsimony  in  educa- 
tional effort  are  among  the  burdens  which  the  state  will  in  the  end 
be  forced  to  assume.  Whether  we  approve  or  disapprove  of  the  state 
assumption  of  responsibilities  of  this  nature,  as  dispassionate  ob- 
servers of  historical  tendencies  we  are  compelled  to  admit  that  in 
every  modern  state  the  party  of  "social  reform"  is  making  rapid 
headway.  There  is  in  the  existing  social  constitution  no  opposing 
force  powerful  enough  to  prevent  the  ultimate  realization  of  part, 
if  not  of  the  whole,  of  the  program  of  the  social  reformers.  With 
the  new  fiscal  burdens  that  will  have  to  be  assumed,  new  sources  of 
revenue  must  be  found,  or  old  sources  must  be  made  more  fruitful. 
It  is  a  realization  of  this  situation  that  fixes  the  eye  of  the  democracy 
upon  the  vast  mass  of  wealth  passing  each  year  from  the  able  hands 
of  its  accumulators  to  the  hands  of  all  but  passive  heirs.  What 
profit  shall  the  democracy  fix  for  itself  on  death's  turnover? 

To  Adam  Smith  and  his  immediate  successors  the  inheritance  tax 
presented  one  serious  defect :  it  is  an  unthrifty  tax,  falling,  not  upon 
"revenue,"  but  upon  capital,  and  hence  tends  to  deplete  the  national 
stock  of  parent  wealth.  If  this  view  of  the  matter  is  valid,  the  prog- 
ress of  inheritance  taxation  as  a  source  of  ordinary  revenue  cannot 
be  regarded  as  an  unmixed  good.  Admitting,  as  we  must,  that  the 
maintenance  of  the  capital  stock  is  not  in  itself  the  highest  end  of 
social  policy,  and  that  we  must  at  times  accept  capital  depletion  as 
the  legitimate  cost  of  a  higher  good,  we  are  yet  not  justified  in  over- 
looking the  fact  that  the  dissipation  of  accumulated  capital  is  a  social 
cost  which  should  be  reduced  to  a  minimum,  so  far  as  this  is  possible. 
This  point,  I  assume,  scarcely  needs  argument,  as  the  social-eco- 
nomic value  of  thrift  is  one  of  the  best-established  values  of  economic 
theory. 

The  inheritance  tax  rests  upon  the  entire  mass  of  wealth,  includ- 
ing that  which  originates  in  unearned  increment  as  well  as  that  which 
originates  in  saving.  But  the  state  does  not  take  from  a  given  in- 
heritance proportionate  shares  of   the  lands,   reproducible  goods, 

"Adapted  from  "Public  Capitalization  of  the  Inheritance  Tax"  in  the 
JourriQl  of  Political  Economy,  XXll,  160-180  (1914)- 


7i8  CURRENT  ECONOMIC  PROBLEMS 

franchises,  and  other  privileges  that  compose  it.  The  public  author- 
ity demands  money,  and  this  is  drawn,  in  one  way  or  another,  from 
liquid  capital.  The  whole  of  the  inheritance  tax,  then,  is  paid  out  of 
the  fund  of  fluid,  mobile  capital,  which  is  the  sole  financial  basis  of 
the  goods  which  conserve  or  increase  our  productive  equipment — 
the  fund  of  which  it  may  properly  be  said  that  it  originates  in  saving. 

With  rates  of  inheritance  taxation  so  light  and  accumulations  so 
large  as  they  are  in  most  of  our  states,  the  tendency  of  such  taxes 
to  trench  upon  accumulated  capital  may  be  almost  negligible.  But 
it  would  be  hazardous  to  assume  that  accumulation  in  the  United 
States  can  continue  indefinitely  at  the  present  rate.  Our  large  sav- 
ings from  income  may  be  explained,  in  part  at  least,  by  economic 
conditions  which  are  manifestly  transitory.  Our  working  class,  re- 
cently transplanted  from  a  less  fertile  economic  field,  secure  incomes 
in  excess  of  their  accustomed  needs,  and  accordingly  have  a  surplus 
for  accumulation.  Our  men  of  wealth,  newly  enriched,  have  not, 
as  a  class,  acquired  the  art  of  luxurious  consumption.  Their  in- 
comes outrun  their  expenditures,  and  the  surplus  accumulates  with- 
out active  effort  on  their  part.  New  opportunities  presented  by  na- 
ture or  created  by  society  have  always  been  available  and  have  served 
as  an  additional  stimulus  to  thrift.  One  cannot  gain  title  to  a  home- 
stead, one  cannot  seize  and  exploit  coal  lands  or  street-railway  fran- 
chises, without  the  control  of  funds  accumulated  from  income. 
Rarely,  in  a  rapidly  developing  economic  state,  is  it  possible  for  an 
entrepreneur  to  draw  from  pre-existing  funds  all  the  capital  requisite 
to  a  full  exploitation  of  his  opportunities.  He  must  supplement  the 
funds  which  he  already  owns  and  those  which  he  can  borrow  with 
funds  saved  from  his  current  income,  if  he  is  unwilling  to  forego 
many  chances  of  great  profit.  "Unearned  increment"  thus  serves 
as  a  premium  upon  thrift. 

As  our  economic  conditions  become  more  settled  the  unearned 
increment  loses  much  of  its  potency  as  a  stimulus  to  thrift.  Further- 
more, our  laborers  are  raising  their  standards  of  living  and  our 
capitalists  are  learning  the  ways  of  a  society  which  knows  how  to 
spend  its  income.  How  soon  the  rate  of  accumulation  will  begin 
to  decline,  and  how  rapid  the  decline  will  be,  we  need  not  attempt 
to  predict.  For  our  present  purpose  it  is  sufficient  to  point  out  that 
a  tax  rate  which  would  today  absorb  20  per  cent  of  our  annual  accu- 
mulations would  absorb  a  much  larger  percentage  of  the  annual  ac- 
cumulations of,  say,  1964. 

Granted,  then,  that  the  evil  of  unthrifty  inheritance  taxes  is 
negligible  at  the  present  time,  when  the  taxes  are  light  and  the  rate 
of  accumulation  is  high.  Such  taxes,  nevertheless,  are  destined  to 
become  heavier  and  the  rate  of  accumulation  is  destined  to  become 


PROBLEMS  OF  TAXATION  719 

less.  The  evil,  obviously,  is  one  which  has  the  capacity  of  growing 
into  importance. 

If  the  inheritance  tax  is  indeed  affected  with  the  vice  of  unthrift 
and  if  the  defect  may  lead  to  such  serious  consequences  as  have  been 
indicated,  it  might  be  thought  to  be  a  part  of  wisdom  to  abandon  the 
tax  altogether,  or  to  restrict  it  to  so  narrow  a  range  that  its  power 
of  destroying  accumulated  capital  would  be  negligible.  To  propose 
such  a  restriction  of  the  tax,  however,  would  be  idle,  in  view  of  the 
powerful  social  and  political  forces  to  which  its  development  re- 
sponds. Economists  may  urge  the  necessity  of  capital  conservation, 
but  the  democracy  will  be  slow  to  recognize  such  necessity,  so  long 
as  the  alternative  to  a  policy  of  public  dissipation  of  capital  is  the 
perpetuation  of  vast  private  estates.  Must  we  accept  this  alterna- 
tive? There  seems  to  be  no  good  reason  why  we  should.  There 
is  nothing  in  the  nature  of  the  state  which  requires  it  to  assume  the 
role  of  a  prodigal  heir  who  squanders  his  inheritance  upon  current 
needs  instead  of  administering  it  prudently  with  a  view  to  its  future 
increase.  The  state  can  adopt  the  same  policy  which  every  prudent 
person  recommends  to  the  private  heir.  It  can  treat  capital  acquired 
through  inheritance  as  a  fund  to  be  maintained  intact.  Let  the  state 
set  apart,  as  a  permanent  investment  fund,  the  proceeds  of  all  inheri- 
tance taxes,  and  depletion  of  the  natural  capital  will  at  once  cease. 

The  public  capitalization  of  the  inheritance  tax  would  tend  to 
conserve  the  national  stock  of  productive  wealth.  It  is  a  policy  that 
would  encounter  no  insuperable  administrative  difficulties ;  it  would 
not  seriously  prejudice  the  interests  of  the  private  investor.  Po- 
litically and  socially  such  a  policy,  if  it  has  potentialities  for  evil, 
would  appear  to  have  far  greater  potentialities  for  good. 

There  is  manifestly  nothing  revolutionary  in  principle  in  a  capital 
fund  owned  and  managed  by  the  state  for  the  benefit  of  a  particular 
public  service.  Public  and  semi-public  endowment  funds  now  in 
existence  in  this  country  amount,  in  the  aggregate,  to  an  imposing 
sum.  We  are  living  in  an  epoch  in  which  the  funded  endowment  is 
employed  with  growing  frequency.  There  is  an  increasing  reluc- 
tance on  the  part  of  private  donors  to  contribute  funds  merely  for 
current  expenditures ;  there  is  an  increasing  tendency  on  the  part  of 
public  and  semi-public  institutions  to  transform  extraordinary  cur- 
rent receipts  into  permanent  endowment.  Not  on  principle,  then, 
can  a  plan  of  the  permanent  endowment  of  a  public  service  be 
treated  as  revolutionary.  If  there  is  anything  revolutionary  in  the 
plan,  it  must  consist  solely  in  the  magnitude  of  the  operations  that 
it  would  entail. 

Defenders  of  an  economic  system  based  upon  the  principle  of 
private  property  must  admit  that  at  two  points  their  position  is  de- 


720  CURRENT  ECONOMIC  PROBLEMS 

cidedly  weak:  the  private  enjoyment  of  funded  income,  and  the 
private  burden  upon  the  worker  of  mischances  against  which  it  is 
impossible  for  him  to  make  provision.  The  private  recipient  of  an 
absolutely  secure  funded  income  is  freed  from  the  necessity  of  ex- 
ercising the  skill  and  foresight  which  serve,  in  general,  as  an  ethical 
basis  for  the  defense  of  private  property.  The  active  manager  of  an 
industrial  capital  finds  his  position  morally  weakened  by  the  fact 
that  his  property  income  is  assimilated,  in  the  social  consciousness, 
to  that  of  the  functionless  "remittance  man."  However  much  we 
may  approve  of  the  policy  of  throwing  upon  each  able-bodied  man 
the  responsibility  for  finding  means  of  self-support,  we  must  admit 
that  hundreds  of  thousands  of  our  workingmen  are  exposed  to 
chances  against  which  they  can  make  no  adequate  provision.  For 
hundreds  and  thousands  of  our  city  workers,  the  only  escape  from 
an  indigent  old  age  is  premature  death.  For  hundreds  of  thousands 
of  families,  the  death  of  the  chief  breadwinner  means  the  maiming 
of  children's  lives  almost  past  recovery.  A  system  which  permits 
such  evils  is  surely  not  free  from  moral  weakness.  Now,  the  general 
tendency  of  the  policy  which  I  propose  is  to  divert  to  the  state  'part 
of  the  funded  income  of  society  from  the  private  recipients  in  whose 
hands  it  subserves  no  useful  purpose,  and  to  charge  upon  it  precisely 
those  burdens  by  which  the  weak  are  now  crushed.  Not  by  the 
rough  method  of  expropriation,  however,  but  by  a  method  which  is 
legal  as  well  as  ethical,  and  which  entails  no  sacrifice  of  the  future  to 
present  gain.  The  public  capitalization  of  inheritance  taxes  would 
result  in  an  accumulation  of  funds  which  would  be  gradual,  and  it 
would  hence  leave  opportunity  for  the  development  of  efficient 
means  of  administration.  Under  this  plan  public  accumulations 
would  constantly  increase ;  but  their  increase  could  never  become  so 
great  as  to  restrict  the  field  of  private  property  unless  private  accu- 
mulations should  come  to  a  standstill  and  opportunities  for  private 
exploitation  should  fail. 

F.     THE  SINGLE  TAX 
350.     The  Increase  in  Land  Values 

a)     Land  Values  in  the  Fifteenth  Century^^ 

BY  THEROLD  ROGERS 

During  the  fifteenth  century,  notwithstanding  the  difficulties  and 
losses  of  the  landowner,  the  value  of  land  rose  rapidly.  In  the  four- 
teenth century  it  was  constantly  obtained  for  ten  years'  purchase, 

"Adapted  from  Six  Centuries  of  Work  and  Wages,  287. 


PROBLEMS  OF  TAXATION  721 

the  amount  of  land  in  the  market  being  probably  so  abundant,  and 
the  competition  for  its  purchase  so  slight,  that  it  easily  changed 
hands  at  such  a  rate.  Land  was  valued  at  twenty  years'  purchase 
in  the  middle  of  the  fifteenth  century. 

h)     Rents  in  the  Sixteenth  Century 

BY  HUGH  I^TIMER 

Land  which  went  heretofore  for  twenty  or  forty  pounds  a  year 
now  is  lent  for  fifty  or  a  hundred.  My  father  was  a  yeoman,  and 
had  no  lands  of  his  own,  he  had  a  farm  at  a  rent  of  three  or  four 
pounds  by  the  year  at  the  uttermost;  and  thereupon  he  tilled  so 
much  as  kept  half  a  dozen  men.  He  had  walk  for  a  hundred  sheep, 
and  my  mother  milked  thirty  kine.  He  kept  me  to  school ;  he  mar- 
ried my  sisters  with  five  pounds  apiece,  so  that  he  brought  them  up 
in  godliness  and  fear  of  God.  And  all  this  he  did  of  the  same  farm 
where  he  that  now  hath  it  payeth  sixteen  pounds  rent  or  more  by 
the  year,  and  is  not  able  to  do  anything  for  his  prince,  for  himself, 
nor  for  his  children,  nor  to  give  a  cup  of  drink  to  the  poor. 

c)     The  Power  of  Landlords^* 

BY  THOMAS  SPfiNCE 

And  any  one  of  them  (the  landlords)  still  can,  by  laws  of  their 
own  making,  oblige  every  living  creature  to  remove  off  his  prop- 
erty ;  so,  of  consequence,  were  all  the  landholders  to  be  of  one  mind, 
and  determine  to  take  their  own  properties  into  their  own  hands, 
all  the  rest  of  mankind  might  go  to  heaven  if  they  would,  for  there 
would  be  no  place  found  for  them  here.  Thus  men  may  not  live  in 
any  part  of  this  world,  not  even  where  they  are  born,  but  as  strang- 
ers, and  by  the  permission  of  the  pretender  to  the  property  thereof. 

d)     The  Influence  of  Rent  on  Trade  and  Commerce^* 

BY  A.  O'CONNOR 

What  are  the  circumstances  under  which  manufacturing  indus- 
try is  carried  on  in  this  country  in  respect  of  the  use  of  land?  With 
the  falling  in  of  leases  so  much  higher  a  ground  rent  is  charged 
that  even  with  an  increase  of  business  there  is  less  profit.    Not  only 

'•From  a  lecture  delivered  before  the  Philosophical  Society  of  Newcastle 
in  1775.    Quoted  in  Wallace.  Studies  Scientific  and  Social,  II,  435. 

"Adapted  from  Special  Report  of  the  Royal  Commission  on  the  Depres- 
sion in  Trade  and  Industry  (1885). 


722  CURRENT  ECONOMIC  PROBLEMS 

in  London  does  the  amount  paid  for  the  occupation  of  ground  bear 
a  higher  proportion  to  the  profits  of  trade  than  it  formerly  did,  but 
in  Birmingham  too,  where  trade  prices  have  been  lowered,  profits 
reduced,  and  wages  are  less,  and  where  there  are  large  numbers  of 
I>ersons  vainly  seeking  employment,  the  price  which  has  to  be  paid 
for  the  use  of  land  has  increased.  The  evidence  on  this  point  from 
Sheffield,  again,  was  of  the  clearest;  and  it  was  shown  that  in  Jar- 
row,  which  the  shipbuilding  industry  may  be  said  to  have  created, 
the  landowners  draw  from  the  earnings  of  the  industrial  classes  an 
immense  income  in  consideration  of  the  occupation  of  ground  the 
improvement  in  the  value  of  which  is  in  no  way  attributable  to  them. 
And  so  of  other  places.  As  in  the  agricultural  and  mining  districts, 
so  in  the  industrial  and  manufacturing  centres,  the  amounts  which 
have  to  be  paid  for  the  use  of  land  constitute  a  burden  upon  indus- 
try which  is  constantly  becoming  heavier,  both  absolutely  and  rela- 
tively. It  thus  appears  that  over  the  entire  country  there  is  a  cause 
at  work  —  general,  permanent,  and  far-reaching  —  affecting  every 
branch  of  industry,  in  mine,  and  farm,  and  factory,  the  effects  of 
which  are  traceable  in  the  languishing  condition  of  the  agricultural, 
and  the  mining,  and  the  manufacturing  interests.  That  cause  is 
the  fact  that  under  the  existing  land  system  the  owners  of  the  soil 
are  able  to  obtain,  and  to  exact,  so  large  a  proportion  of  the  pro- 
ceeds of  the  industry  of  the  United  Kingdom  that  the  remainder 
is  insufficient  to  secure  adequate  remuneration  to  the  industrial 
classes,  either  in  the  shape  of  wages  to  operatives  or  reasonable 
profit  to  the  organisers  of  labour,  the  employers,  or  capitalists. 

e)    A  Land  Boom  in  Iowa 

BY  ALFRI;d  RUSSEI,  WAIvLACE 

I  stayed  some  time  in  a  growing  city  in  Iowa,  called  Sioux  City, 
which  has  a  population  of  20,000.  They  were  having  what  is  called 
a  land  boom — every  city  tries  its  best  to  have  one — we  should  call 
it  a  land  fever;  and  the  consequence  was  that  land  which  sold  at 
$50  an  acre  three  years  ago  was  selling  at  $750.  It  was  two  miles 
from  the  city  and  it  was  sold  with  the  idea  that  the  city  would  soon 
stretch  out,  and  reach  it.  In  the  residential  suburbs  the  price  ob- 
tained was  $22,000  an  acre,  and  in  the  centre  of  the  city  it  was 
$200,000  an  acre.  In  the  town  of  Salina,  in  Kansas,  with  a  popu- 
lation of  only  8,000,  land  in  the  suburbs  is  now  selling  at  $22,000 
an  acre,  and  in  the  centre  of  the  town  at  $150,000  an  acre.  Here 
also  they  have  had  a  boom,  and  land  has  doubled  in  value  in  a  few 
months. 


PROBLEMS  OF  TAXATION  723 

f)     The  Social  Importance  of  Rent^^ 

BY  AI.FRED  RUSSEIv  WALLACE 

Rent  is  the  equalizer  of  opportunities,  the  means  of  giving  fair 
play  to  all  cultivators  of  the  soil  in  the  struggle  for  existence.  Farms 
differ  greatly  in  value  because  of  differences  in  fertility  and  differ- 
ences in  location  as  regards  the  market.  The  owner  of  a  very  fer- 
tile farm  near  the  railroad  has  quite  an  advantage  over  one  whose 
farfti  is  less  fertile  and  far  removed  from  the  main  lines  of  com- 
munication. It  is  just  the  same  with  shops  and  stores.  The  busi- 
ness done,  other  things  being  equal,  will  depend  upon  the  location. 
Now  prices  are  fixed  by  the  competition  of  the  whole  of  the  stores 
or  farms.  Because  of  the  strength  of  the  more  favored  class,  were 
there  no  rents,  the  less  favored  class  would  be  driven  out  and  the 
whole  business  absorbed  by  their  more  fortunate  rivals.  But  if  all 
these  shops  belong  to  landlords,  whether  private  individuals  or 
municipalities,  then  rents  will  be  so  much  higher  in  one  case  than 
in  the  other  as  to  equalize  the  opportunities  of  both.  Both  will  then 
be  able  to  earn  a  living  for  a  time,  and  the  ultimate  superior  success 
of  either  will  be  a  matter  of  business  capacity.  The  competition 
between  them  will  be  fair  and  equal. 

The  same  thing  happens  with  rival  manufacturers.  Facilities 
for  getting  raw  materials,  cheapness  of  power,  enable  one  to  under- 
sell another,  and  ultimately  to  drive  him  out  of  the  market,  unless 
the  former  is  subjected  to  an  increased  rent,  to  compensate  for  his 
advantage  of  position. 

g)     The  Benefits  of  Improvement^^ 

BY  ADOLPH  WAGNER 

The  great  expenditure  of  the  State  out  of  the  resources  of  the  en- 
tire population,  and  with  the  increasing  population,  for  the  most  part 
out  of  the  resources  of  those  who  do  not  own  land,  for  street  san- 
itation, education,  etc.,  has  ultimately  the  tendency  to  increase  the 
height  of  rent  and  the  value  of  property  in  urban  lands  and  build- 
ings, because  the  increase  in  the  urban  population  is  thereby  fav- 
ored. In  such  cases  the  urban  landowner  profits  doubly,  and  the 
landless  population  pays  in  taxes  the  money  for  expenditure  which 
indirectly  leads  to  a  new  increase  in  rents,  thus  suffering  in  two 
ways. 

••Adapted  from  "The  Social  Quagmire  and  the  Way  out  of  It,"  in  Studies 
Scientific  and  Social,  II,  404-405  (1900). 

"Adapted  from  Grundlegung  der  politischen  Oekonomie,  658-659  (1892). 


724  CURRENT  ECONOMIC  PROBLEMS 

351.     The  Social  Injustice  of  Rent^'^ 

BY  HENRY  GEORGE 

The  coal  and  iron  fields  of  Pennsylvania,  that  today  are  worth 
enormous  sums,  were  fifty  years  ago  valueless.  What  is  the  efficient 
cause  of  the  difference?  Simply  the  difference  in  population.  The 
coal  and  iron  beds  of  Wyoming  and  Montana,  which  today  •  are 
valueless,  will  in  fifty  years  from  now  be  worth  millions  on  mil- 
lions simply  because  in  the  meantime  population  will  have  greatly 
increased. 

The  man  who  sets  out  from  the  Eastern  seaboard  in  search  of 
the  margin  of  cultivation,  where  he  may  obtain  land  without  pay- 
ing rent,  must,  like  the  man  who  swam  a  river  to  get  a  drink,  pass 
for  long  distances  through  half-tilled  farms,  and  traverse  vast  areas 
of  virgin  soil,  before  he  reaches  the  point  where  land  can  be  had 
free  of  rent.  He  is  forced  so  much  further  than  he  otherwise  need 
have  gone  by  the  speculation  which  is  holding  these  unused  lands 
in  expectation  of  increased  value  in  the  future. 

That  land  speculation  is  the  cause  of  industrial  depression  is 
clearly  evident.  In  each  period  of  industrial  activity  land  values 
have  steadily  risen,  culminating  in  speculation  which  carried  them 
in  great  jumps.  This  has  been  invariably  followed  by  a  partial  ces- 
sation of  production  accompanied  by  a  commercial  crash ;  and  then 
has  succeeded  a  period  of  comparative  stagnation,  during  which 
again  the  equilibrium  has  been  slowly  established,  and  the  same 
round  has  been  run  again. 

Land  can  yield  no  w^ealth  without  the  application  of  labor ;  labor 
can  produce  no  wealth  without  land.  These  are  the  two  equally 
necessary  factors  of  production.  Yet  to  say  that  they  are  equally 
necessary  is  not  to  say  that  in  the  making  of  contracts  as  to  distri- 
bution, the  possessors  of  the  two  meet  on  equal  terms.  For  the 
nature  of  the  two  factors  is  very  different.  Land  is  a  natural  ele- 
ment; the  hurnan  being  must  have  his  stomach  filled  every  few 
hours.  Land  can  exist  without  labor;  but  labor  cannot  exist  with- 
out land.  Land  can  lie  idle  for  years,  and  it  will  eat  nothing.  But 
the  laborer  and  his  family  must  eat  every  day.  And  so  in  the  mak- 
ing of  terms  between  them  the  landlord  has  an  immense  advantage. 
And,  further  than  this,  as  population  increases,  as  the  competition 
for  the  use  of  land  becomes  more  and  more  intense,  so  are  the 
owners  of  land  enabled  to  get  for  the  use  of  their  land  a  larger  and 
larger  part  of  the  wealth  which  labor  exerted  upon  it  produces. 

"^Adapted  from  Progress  and  Poverty,  Book  IV,  chaps,  ii,  iv,  and  Book 
V,  chap,  i  (1879),  and  The  Land  Question,  62  (1881). 


PROBLEMS  OF  TAXATION  725 

That  is  to  say  the  value  of  land  steadily  rises.  This  steady  rise 
brings  about  confident  expectations  of  future  rises  of  value,  which 
produces  among  landowners  all  the  effects  of  a  monopoly  to  hold 
for  higher  prices.  Thus  there  is  a  constant  tendency  to  force  mere 
laborers  to  take  less  and  less  or  to  give  more  and  more  of  the  pro- 
ducts of  their  work  for  the  opportunity  to  work.  In  course  of  time, 
in  any  society,  some  of  the  people  are  able  to  l^ike  and  enjoy  a  sup- 
erabundance of  all  the  fruits  of  labor  withotit  doing  any  labor  at 
all,  while  others  are  forced  to  work  the  livelong  day  for  a  pitiful 
living. 

352.     The  Theoretical  Basis  of  the  Single  Tax" 

BY  C.  B.  FILLEBROWN 

The  argimient  in  favor  of  the  single  tax  may  be  put  briefly  as 
follows:  The  three  economic  legs  necessary  and  sufficient  where- 
upon the  single  tax  stool  may  finnly  stand  are  found  in  three 
generic  peculiarities  quite  exceptional  in  their  nature,  which  dis- 
tinguish land  from  man-made  products.  The  failure  to  recognize 
this  distinction  is  sufficient  to  account  for  the  crookedness  of  the 
present  system  of  taxation.  These  three  attributes,  firmly  grounded 
in  orthodox  economics,  are  as  follows :  (a)  The  site  value  of  land 
is  a  social  product,  {b)  A  land  tax  cannot  be  shifted,  (c)  The  selling 
value  of  land  is  an  untaxed  value.  These  three  fundamentals  are 
worthy  of  brief  separate  consideration. 

First  in  order  is  that  land  value  is  a  social  product,  that  it  is 
created  principally  by  the  community  through  its  activities,  indus- 
tries, and  expenditures.  The  value  of  land  is  based  upon  economic 
rent,  "what  land  is  worth  for  use."  Strictly  speaking  this  worth 
for  use  attaches  itself  not  only  to  the  ground  but  to  scores  of  things 
exterior  to  it  and  through  it  made  available  for  use.  In  practice 
the  term  land  is  erroneously  used  to  include  destructible  elements 
which  require  constant  replacement;  but  these  form  no  part  of  the 
economic  advantage  of  situation.  Ground  rent  may  be  said  to  result 
from  at  least  three  distinct  causes,  all  of  which  are  connected  with 
aggregated  social,  as  distinct  from  individual,  activity:  (i),  public 
expenditure;  (2),  quasi-public  expenditure;  (3),  private  expendi- 
ture. Thus  their  very  nature  and  origin  would  seem  to  point  to  land 
values  as  peculiarly  fitted  to  bear  justly  the  burden  of  taxation. 

Second  in  order  is  the  fundamental  fact  that  a  tax  upon  ground 
rent  cannot  be  shifted  upon  the  tenant  in  increased  rent.  Ground 
rent  is  determined,  not  by  taxation,  but  by  demand.     Ground  rent 

"Adapted  from  The  A-B-C  of  Taxation,  155-163.  Copyright  by  the 
author  (1909). 


726  CURRENT  ECONOMIC  PROBLEMS 

is  the  gross  income,  a  tax  is  a  charge  upon  this  income.  A  tax  may 
be  conceived  of  as  a  lien  upon  land  held  by  the  state.  It  affects  the 
relations  between  owner  and  state ;  it  has  no  bearing  upon  the  rela- 
tions between  owner  and  tenant.  Tax  is  simply  the  name  of  the 
gross  ground  rent  which  is  taken  by  the  state  in  taxation,  the  other 
part  going  to  the  owner.  The  greater  the  tax  the  smaller  the  net 
rent  to  the  owner  and  vice  versa.  Ground  rent  is  "all  that  the  traffic 
will  bear."  The  owner  gets  all  he  can  for  the  use  of  his  land 
whether  the  tax  be  light  or  heavy.  Putting  more  tax  upon  land  will 
not  make  it  worth  more  for  use. 

Third  is  the  necessary  corollary  that  the  selling  value  of  land 
is  an  untaxed  value,  a  proposition  which  has  not  been  seriously 
questioned  by  economists.  Every  purchaser  of  a  piece  of  property 
knows  without  argument  that  he  is  governed  as  to  the  price  he  will 
pay,  not  by  the  gross  income,  but  by  the  net  income  that  will  remain 
to  him  after  all  charges  and  incumbrances  have  been  discharged. 
Landowners  who  invest  today  are  entirely  exempt  from  taxation. 
It  is  in  the  very  nature  of  things  that  the  burden  of  a  land  tax  cannot 
be  made  to  survive  a  change  of  ownership. 

If  it  is  admittedly  wrong  that  present  land  values  should  be  un- 
taxed, how  can  such  fiscal  wrong  best  be  righted  ?  Begin  at  once  a 
transfer  of  taxes  from  improvements  to  land,  so  gradual  that  two 
old  injustices  will  cease  for  every  new  one  that  is  begun,  until  this 
untaxed  value  is  made  to  bear  at  least  its  proportionate  burden  at 
the  same  rate  with  other  things.  If  economists  and  taxation  ex- 
perts will  quit  their  dead  reckoning  and  steer  their  craft  by  the 
single-tax  polestar,  time  and  tide  will  do  the  rest. 

353.     A  Criticism  of  the  Single  Tax^* 

BY  CHARLES  J.  BULLOCK 

In  studying  Mr.  George's  plans  for  land  nationalization,  the  fol- 
lowing considerations  are  important: 

In  one  sense  of  the  word,  economic  rent  may  be  called  an  un- 
earned income;  yet  it  accrues  mainly  to  people  who  incur  the  risks 
of  investing  in  land,  and  cannot  be  secured  without  the  exercise 
of  foresight.  Now,  Mr.  George  assumes  that  such  investors  never 
lose,  but  always  gain.  This  is  far  from  true.  At  present,  investors 
run  the  risk  of  loss  when  they  purchase  land  and  improve  it.  This 
risk  is  counterbalanced  by  the  prospect  of  an  increase  in  economic 
rent.    Mr.  George  would  have  the  state  appropriate  all  such  incre- 

"Adapted  from  Introduction  to  the  Study  of  Economics,  454-456.  Copy- 
right by  Silver,  Burdett  &  Co.  (1908). 


PROBLEMS  OP  TAXATION  727 

ments  of  economic  rent,  while  investors  would  bear  all  the  losses 
on  improvements  that  should  become  unprofitable  on  account  of 
changes  in  the  direction  of  the  growth  of  the  community.  The 
late  President  Walker  said,  justly,  "Heads  I  win,  tails  you  lose,  is 
not  a  game  at  which  the  state  can,  in  fairness  or  decency,  play  a 
part."  If  the  state  takes  from  an  investor  all  increments  of  rent 
due  to  social  causes,  it  should  guarantee  him  from  losses  on  capital 
invested  in  improvements,  provided  that  those  losses  result  from 
social  causes  over  which  he  has  no  control. 

As  a  revenue  measure,  the  single  tax  would  often  prove  a  dis- 
appointment. In  England,  for  instance,  the  rents  of  practically  all 
agricultural  lands  have  steadily  fallen  for  more  than  twenty  years. 

If  the  English  government  had  bought  out  all  owners  of  agricul- 
tural lands  at  the  time  when  the  Land  Tenure  Reform  Association 
proposed  such  a  course,  it  would  have  made  a  decidedly  bad  invest- 
ment. In  many  states  of  our  Union  the  same  thing  is  true  of  agri- 
cultural rents,  while  it  has  occurred  repeatedly  in  cities. 

We  must  admit  that  a  large  unearned  increment  of  ground  rents 
is  secured  by  the  owners  of  specially  favored  lots.  No  one  would 
question  the  justice  of  imposing  a  part  of  the  burden  of  taxation 
upon  such  an  income ;  but  we  should  not  forget  that  there  are  other 
unearned  incomes  besides  those  secured  from  some  pieces  of  land. 
When  a  monopoly  of  any  sort  develops  an  unusually  profitable  field 
of  investment,  part  of  the  monopoly  profits  are  an  unearned  income, 
and  should  be  taxed  also.  As  a  simple  matter  of  fact,  all  those 
persons  who  have  the  good  fortune  to  be  favorably  affected  by  each 
actual  turn  of  social  development  are  likely  to  receive  unearned  in- 
comes. It  is  just  to  tax  all  of  these  incomes  whenever  they  can 
be  reached  with  certainty ;  but  to  tax  them  all  away  is  quite  a  differ- 
ent matter.  Finally,  in  the  United  States,  there  are  practically  no 
restrictions  upon  the  purchase  or  sale  of  land.  Any  unearned  in- 
crement is  likely  to  be  distributed  quite  widely,  because  landowner- 
ship  is  widely  extended. 

Mr.  George's  plan  of  confiscating  the  value  of  land  without  com- 
pensating present  owners  does  not  appeal  to  the  conscience  of  the 
average  American  as  just.  Society  has  allowed  private  landown- 
ership  in  this  country  ever  since  English  settlement.  The  pres- 
ent owners  have  invested  in  land  in  good  faith.  If  it  should  be 
decided  inexpedient  to  continue  our  present  system,  the  burden  of 
the  change  should  not  be  thrown  upon  the  single  class  of  landowners. 


XIV 
COMPREHENSIVE   SCHEMES  OF   SOCIAL  REFORM 

"Social  unrest"  is  not  an  exclusive  and  prized  possession  of  Modern 
Industrialism.  The  voice  of  prophet,  of  seer,  or  reformer,  has  long  been 
heard  in  the  land,  condemning  the  prodigal  waste^of  the  rich,  the  unjust 
distribution  of  "the  common  store  of  earthly  wealtn,"  the  institutions  which 
"create  and  perpetuate  artificial  class  differences,"  and  the  "tangled  scheme 
of  human  affairs"  which  we  call  life.  Peculiar  as  are  the  voices  condemn- 
ing the  society  we  know,  they  are  like  those  of  other  times  in  demanding 
"a  way  out." 

That  all  is  not  good  is  clearly  realized  by  even  the  most  stalwart  of 
individualists.  In  devious  ways  they  would  guide  us  out  of  the  social 
wilderness.  One  would  leave  "natural  selection"  to  "eliminate  the  unfit," 
to  free  us  from  "the  spawn  of  earth,"  and  to  make  us  a  happier  society 
by  making  us  a  better  people.  Another  would  substitute  a  large  program, 
and  a  still  larger  spirit,  of  co-operation  for  "the  sordid  greed  of  compe- 
tition" that  "makes  chaos  of  economic  cosmos."  The  Utopian  dreams  of 
co-operation,  however,  have  recently  been  blighted  by  a  cool  analysis  which 
shows  that  its  promises  are  bright  but  not  spectacular.  Most  prominent 
just  now  is  the  program  of  those  wise  in  the  lore  of  business  who  promise 
a  transformed  society  through  the  magic  of  profit-sharing,  "scientific  man- 
agement," and  "welfare  work."  Give  them  control  of  technique,  organ- 
ization, and  working  conditions,  and  they  will  fill  the  land  with  plenty,  the 
while  raising  labor  to  a  pinnacle  before  undreamed  of.  Through  their 
superimposed  scheme  the  unwilling  laborer  is  to  be  fed,  clothed,  housed, 
recreated,  amused,  educated,  and  introduced  into  a  new  paradise.  If  he 
fails  to  get  what  he  wants — if  industrial  democracy  fails  of  realization- 
he  will  at  least  get  what  is  good  for  him.  A  supreme  pre-wisdom  will 
supplant   his   shortsightedness. 

But  the  non-individualists  are  even  more  bent  upon  a  transformation 
of  industrial  society.  One  program  of  reconstruction,  a  program  inherent 
in  the  activity  of  a  number  of  groups,  rather  than  consciously  formulated, 
is  well  under  way.  It  is  evident  in  the  tendency  toward  government  regu- 
lation— and  even  ownership — of  railroads  and  capitalistic  monopolies;  in 
the  proposal  to  choose  our  own  population  by  a  regulation  of  births  and 
of  immigration;  in  the  attempt  through  state  action  to  eliminate  economic 
insecurity;  in  the  growth  of  a  spirit  of  group  solidarity  so  apparent  in 
unionism;  in  a  formal  modification  of  the  "fundamental"  institutions  of 
society,  and  informal  change  through  taxation  and  social  convention.  The 
extent  to  which  this  program  will  be  realized — and  whither  it  is  tending 
— only  the  future  can  reveal. 

A  more  drastic  program,  springing  from  a  similar  philosophy,  is  pre- 
sented in  socialism.  Its  strength  lies  partly  in  the  "righteous  indictment" 
which  it  can  make  against  the  "capitalistic  organization  of  society,"  and 
partly  in  the  sublime  faith  which  the  classes  to  which  it  appeals  have  in 
the  efficacy  of  elaborate  social  machinery  to  eliminate  social  evils.  The 
analysis  of  society  made  by  most  of  its  advocates  is  immediate,  and  loses 
sight  of  several  "long-time"  considerations,  such  as  control  of  riumbers 
and  the  accumulation  of  capital.  Socialism,  however,  is  losing  its  militancy. 
As  its  numbers  increase,  it  is  less  and  less  disposed  to  "see  red."  In  its 
latest  manifestations  it  has  become  conventionally  "respectable."    It  is  hard 

728 


PROJECTS  OF  SOCIAL  REFORM  729 

to  distinguish  between  the  "evolutionary  socialist"  of  today  and  the  out- 
and-out  progressive.  The  radical  members  are  leaving  the  ranks  of  social- 
ism to  fight  for  "something  worth  while"  with  the  syndicalists  and  the 
"revolutionary  unionists."  To  find  the  radical  spirit  of  protest  we  must 
turn  to  these  latter  organizations. 

But  what  of  the  future  of  industrial  society?  What  is  going  to  become 
of  it?  When  will  it  solve  its  problems?  When  shall  we  attain  unto  peace 
and  plenty?  Perhaps  we  can  find  some  consolation  in  the  fact  that  even  the 
wisest  of  men  have  constantly  despaired  of  the  future  of  society.  Perhaps 
we  can  solace  ourselves  with  hope,  which  is  ours  eternally.  From  the 
biblical  dream  of  the  "New  Jerusalem"  to  Wells's  vision  of  "A  Modern 
Utopia,"  we  have  had  pictures  a-plenty  of  the  perfect  state  which  "some 
day"  will  be  realized.  We  have  always  had,  and  still  have,  wise  men  who 
furnish  us  with  magical  formulae  for  finding  "the  way  out"  While  most 
of  these  are  so  simple  as  to  tax  our  credulity,  few  of  them  fail  to  contain 
some  germ  of   social  wisdom. 

But,  in  anticipating  the  future,  we  must  not  forget  that  our  social 
resources  are — and  ever  must  be — limited.  We  must  not  overlook  the  fact 
that  the  interests  of  all  are  not  identical.  There  will  ever  be  the  necessity 
for  a  struggle  with  finite  resources,  and  consequent  economy.  There  will 
ever  be  competition  for  the  larger  shares  of  social  income.  If  we  intelli- 
gently attempt  to  direct  the  course  of  our  development,  if  we  try  honestly 
to  make  the  best  possible  contribution  to  the  solution  of  the  world-old 
enigmas  of  society,  if  we  do  our  best  to  rid  the  immediate  situation  of 
its  grosser  incompatibilities,  there  is  reason  for  thinking  that  development 
will  more  closely  accord  with  that  which  we  call  "progress,"  that  the  newer 
social  world  will  be  somewhat  more  to  the  liking  of  the  people  who  have 
to  put  up  with  it  than  the  old.  We  shall  not  have  freed  future  generations 
from  having  to  "solve  problems,"  but  perhaps  we  shall  have  given  them 
new  problems  somewhat  further  removed  from  "the  margin  of  life."  And 
thus  we  come  to  the  end — and  to  the  begfinning — of  our  study. 


A.     THE  VOICE  OF  SOCIAL  PROTEST 

354.     Privilege  and  Power 

a)     Woe  to  the  Idle  Rich} 

Woe  to  them  that  are  at  ease  in  Zion,  and  to  them  that  are  secure 
in  the  mountain  of  Samaria,  the  notable  men  of  the  chief  of  the 
nations,  to  whom  the  house  of  Israel  come !  Pass  ye  into  Calneh, 
and  see ;  and  from  thence  go  ye  to  Hamath  the  great ;  then  go  down 
to  Gath  of  the  Philistines:  are  they  better  than  these  kingdoms? 
or  is  their  border  greater  than  your  border? — ye  that  put  far  away 
the  evil  day,  and  cause  the  seat  of  violence  to  come  near;  that  lie 
upon  beds  of  ivory,  and  stretch  themselves  upon  their  couches,  and 
eat  the  lambs  out  of  the  flock,  and  the  calves  out  of  the  midst  of  the 
stall ;  that  sing  idle  songs  to  the  sound  of  the  viol ;  that  invent  for 
themselves  instruments  of  music,  like  David;  that  drink  wine  in 
bowls,  and  anoint  themselves  with  the  chief  oils;  but  they  are  not 

^Amos,  6:1-7  (750  B.  C) 


730  CURRENT  ECONOMIC  PROBLEMS 

grieved  for  the  affliction  of  Joseph.  Therefore  shall  they  now  go 
captive  with  the  first  that  go  captive;  and  the  revelry  of  them  that 
stretched  themselves  shall  pass  away. 

b)     The  Daughters  of  Zion^ 

Moreover  Jehovah  said,  Because  the  daughters  of  Zion  are 
haughty,  and  walk  with  outstreched  necks  and  wanton  eyes,  walking 
and  mincing  as  they  go,  and  making  a  tinkling  with  their  feet ;  there- 
fore the  Lord  will  smite  with  a  scab  the  crown  of  the  head  of  the 
daughters  of  Zion,  and  Jehovah  will  lare  bare  their  secret  parts.  In 
that  day  the  Lord  will  take  away  the  beauty  of  their  anklets,  and 
the  cauls,  and  the  crescents ;  the  pendants,  and  the  bracelets,  and  the 
mufflers;  the  headtires,  and  the  ankle  chains,  and  the  sashes,  and 
the  perfume  boxes,  and  the  amulets ;  the  rings,  and  the  nose  jewels ; 
the  festival  robes,  and  the  mantles,  and  the  shawls,  and  the  satchels ; 
the  hand-mirrors,  and  the  fine  linen,  and  the  turbans,  and  the  veils. 
And  it  shall  come  to  pass,  that  instead  of  sweet  spices  there  shall 
be  rottenness;  and  instead  of  a  girdle  a  rope;  and  instead  of  well 
set  hair,  baldness;  and  instead  of  a  robe,  a  girdling  of  sackcloth; 
branding  instead  of  beauty. 

c)     Why  the  Lords f* 

BY  JOHN  BALI, 

-By  what  right  are  they  whom  we  call  lords  greater  folk  than 
we?  Why  do  they  hold  us  in  serfage?  They  are  clothed  in  velvet, 
while  we  are  covered  with  rags.  They  have  wine  and  spices  and 
fair  bread;  and  we  oat-cake  and  straw,  and  water  to  drink.  They 
have  leisure  and  fine  houses ;  we  have  pain  and  labor,  the  rain  and 
the  wind  in  the  fields.  And  yet  it  is  of  us  and  our  toil  that  these 
men  hold  their  state. 

d)     Government  and  Inequality* 

BY  SIR  THOMAS  MORE 

Is  not  that  government  both  unjust  and  ungrateful  that  is  so 
prodigal  of  its  favors  to  those  that  are  called  gentlemen,  or  such 
others  who  are  idle,  or  live  either  by  flattery  or  by  contriving  the 
arts  of  vain  pleasure,  and,  on  the  other  hand,  take  no  care  of  those 
of  a  meaner  sort,  such  as  ploughmen,  colliers,  and  smiths,  without 

'Isa.,  3:16-24  (750  B.  C.) 

"Quoted  in  Wallace,  Studies  Scientific  and  Social,  II,  432  (1366?).   1 

"Adapted  from  Utopia,  Cassell's  National  Library  edition,  17  (1516). 


PROJECTS  OF  SOCIAL  REFORM  731 

whom  we  could  not  subsist?  But  after  the  public  has  reaped  all 
the  advantage  of  their  service,  and  they  come  to  be  oppressed  with 
age,  sickness,  and  want,  all  their  labors  and  the  good  they  have  done 
is  forgotten,  and  all  the  recompense  given  them  is  that  they  are 
left  to  die  in  great  misery.  The  richer  sort  are  often  endeavoring 
to  bring  the  hire  of  laborers  lower — not  only  by  their  fraudulent 
practices,  but  by  the  laws  which  they  procure  to  be  made  to  that 
effect;  so  that  though  it  is  a  thing  most  unjust  in  itself  to  give  such 
small  rewards  to  those  who  deserve  so  well  of  the  public,  yet  they 
have  given  those  hardships  the  name  and  color  of  justice,  by  pro- 
curing laws  to  be  made  for  regulating  them. 

Therefore,  I  must  say  that,  as  I  hope  for  mercy,  I  can  have  no 
other  notion  of  all  the  governments  that  I  see  and  know  than  that 
they  are  a  conspiracy  of  the  rich,  who,  on  pretense  of  managing  the 
public,  only  pursue  their  private  ends,  and  devise  all  the  ways  and 
arts  they  can  find  out ;  first,  that  they  may,  without  danger,  preserve 
all  that  they  have  so  ill  acquired,  and  then  that  they  may  engage  the 
poor  to  toil  and  labor  for  them  at  as  low  rates  as  possible,  and  op- 
press them  as  much  as  they  please. 

e)     The  Possibilities  of  Production' 

BY  RICHARD  JEFFREY 

I  verily  believe  that  the  earth  in  one  year  can  produce  enough 
food  to  last  for  thirty.  Why  then  have  we  not  enough?  Why  do 
people  die  of  starvation,  or  lead  a  miserable  existence  on  the  verge 
of  it?  We  have  millions  upon  millions  to  toil  from  morning  till 
evening  just  to  gain  a  mere  crust  of  bread?  Because  of  the  absolute 
lack  of  organization  by  which  such  labor  should  produce  its  effects, 
the  absolute  lack  of  distribution,  the  absolute  lack  of  even  the  very 
idea  that  such  things  are  possible.  Nay,  even  to  mention  such 
things,  to  say  that  they  are  possible  is  criminal  with  many.  Mad- 
ness could  hardly  go  further. 

f)     The  Beginning  of  It  All^ 

,  BY  J.  J.  ROUSSEAU 

The  first  man,  who  having  enclosed  a  piece  of  ground,  took 
thought  to  declare,  "This  is  mine,"  and  found  people  simple  enough 
to  believe  him,  was  the  real  founder  of  civil  society.  How  many 
crimes,  wars,  and  murders,  how  much  misery  and  horror  would  have 

■Quoted  in  Wallace,  Studies  Scientific  and  Social,  II,  490-491. 
"Discours  sur  Tinegalite,  CEuvres,  I,  551   (1754). 


732  CURRENT  ECONOMIC  PROBLEMS 

been  spared  the  human  race  if  some  one,  tearing  down  the  pickets 
and  filling-  up  the  ditch,  had  cried  to  his  fellows,  "Beware  of  listen- 
ing to  that  imposter;  you  are  lost  if  you  forget  that  the  land  be- 
longs to  none  and  its  fruits  to  all." 

355.     "Progress  and  Poverty" 

a)     In  the  Wake  of  Trade'' 

BY  OI.IVER  GOLDSMITH 

Ye  friends  to  truth,  ye  statesmen  who  survey 
The  rich  man's  joys  increase,  the  poor's  decay, 
'Tis  yours  to  judge  how  wide  the  limits  stand 
Between  a  splendid  and  a  happy  land. 
Proud  swells  the  tide  with  loads  of  freighted  ore, 
And  shouting  folly  hails  them  from  her  shore; 
Hoards  even  beyond  the  miser's  wish  abound. 
And  rich  men  flock  from  all  the  world  around. 
Yet  count  our  gains ;  this  wealth  is  but  a  name 
That  leaves  our  useful  products  still  the  same. 
Not  so  the  loss.    The  man  of  wealth  and  pride 
Takes  up  a  space  that  many  poor  supplied; 
Space  for  his  lake,  his  park's  extended  bounds. 
Space .  for  his  horses,  equipage,  and  hounds : 
The  robe  that  wraps  his  limbs  in  silken  sloth 
Hath  robbed  the  neighboring  fields  of  half  their  growth ; 
His  seat,  where  solitary  sports  are  seen. 
Indignant  spurns  the  cottage  from  the  green: 
Around  the  world  each  needful  product  flies, 
For  all  the  luxuries  the  world  supplies ; 
While  thus  the  land,  adorn'd  for  pleasure,  all 
In  barren  splendour  feebly  waits  the  fall. 

b)     When  There  Was  a  Frontier^ 

BY  J.  B.  MC  MASTER 

The  year  1786  in  all  the  states  was  one  of  unusual  distress.  The 
crops  had  indeed  been  good.  In  many  places  the  yield  had  been 
great.  Yet  the  farmers  murmured,  and  not  without  cause,  that 
their  wheat  and  their  com  were  of  no  more  use  to  them  than  so 
many  bushels  of  stones;  that  produce  rotted  on  their  hands.    That 

''The  Deserted  Village,  lines  265-286  (1770). 

•Adapted  from  The  History  of  the  People  of  the  United  States,  II,  180. 
Copyright  by  D.  Appleton  &  Co.  (1885). 


PROJECTS  OF  SOCIAL  REFORM  733 

while  their  bams  were  overflowing,  their  pockets  were  empty.  That 
when  they  wanted  clothes  for  their  families,  they  were  compelled 
to  run  from  village  to  village  to  find  a  cobbler  who  would  take 
wheat  for  shoes,  and  a  trader  who  would  give  everlasting  in  ex- 
change for  pumpkins.  Money  became  scarcer  and  scarcer  every 
week.  In  the  great  towns  the  lack  of  it  was  severely  felt.  But  in 
the  country  places  it  was  with  difficulty  that  a  few  pistareens  and 
coppers  could  be  scraped  together  toward  paying  the  state's  quota 
of  the  interest  on  the  national  debt. 

A  few  summed  up  their  troubles  in  a  general  way,  and  declared 
the  times  were  hard.  Others  protested  that  the  times  were  well 
enough,  but  the  people  were  growTi  extravagant  and  luxurious.  For 
this,  it  was  said,  the  merchants  were  to  blame.  There  were  too 
many  merchants.  There  were  too  many  attorneys.  Money  was 
scarce.  Money  was  plenty.  Trade  was  languishing.  Agriculture 
was  fallen  into  decay.  Manufactures  should  be  encouraged.  Paper 
should  be  put  out. 

One  shrewd  observer  complained  that  his  countrymen  had  fallen 
away  sadly  from  those  simple  tastes  which  were  the  life-blood  of 
republics.  It  was  distressing  to  see  a  thrifty  farmer  shaking  his 
head  and  muttering  that  taxes  were  ruining  him  at  the  very  moment 
his  three  daughters,  who  would  have  been  much  better  employed 
at  the  spinning-wheel,  were  being  taught  to  caper  by  a  French  dan- 
cing master.  It  was  pitiable  to  see  a  great  lazy,  lounging,  lubberly 
fellow  sitting  days  and  nights  in  a  tippling  house,  working  perhaps 
two  days  in  a  week,  receiving  double  the  wages  he  really  earned, 
spending  the  rest  of  his  time  in  riot  and  debauch,  and,  when  the 
tax-collector  came  round,  complaining  of  the  hardness  of  the  times 
and  the  want  of  a  circulating  medium.  Go  into  any  coffee-house  of 
an  evening,  and  you  were  sure  to  overhear  some  fellow  exclaiming, 
"Such  times!  no  money  to  be  had!  taxes  high!  no  business  doing! 
we  shall  all  be  broken  men." 

c)     Labor  and  Value* 

Wages  should  form  the  price  of  goods; 

Yes,  wages  should  be  all; 
Then  we  who  work  to  make  the  goods, 

Should  justly  have  them  all ; 
But,  if  their  price  be  made  of  rent. 

Tithes,  taxes,  profits  all. 
Then  we  who  work  to  make  the  goods 

Shall  have  just  none  at  all. 

•Quoted  in  the  article  on  "Chartism,"  in   The  Dictionary  of  Political 

Economy,  from  The  Poorman's  Guardian   (1831). 


734  CURRENT  ECONOMIC  PROBLEMS 

d)     The  Poor  in  Manchester^'' 

BY  FREDERICK  ENGELS 

The  manner  in  which  the  great  multitude  of  the  poor  is  treated 
by  society  to-day  is  revolting.  They  are  drawn  into  the  large 
cities  where  they  breathe  a  poorer  atmosphere  than  in  the  country; 
they  are  relegated  to  districts  which,  by  reason  of  the  method  of 
construction,  are  worse  ventilated  than  any  others;  they  are  de- 
prived of  all  means  of  cleanliness,  of  water  itself,  since  pipes  are 
laid  only  when  paid  for,  and  the  rivers  so  polluted  that  they  are 
useless  for  such  purposes;  they  are  obliged  to  throw  all  offal  and 
garbage,  all  dirty  water,  often  all  disgusting  offal  and  excrement 
into  the  streets,  being  without  other  means  of  disposing  of  them. 
As  though  the  vitiated  atmosphere  of  the  streets  were  not  enough, 
they  are  penned  in  dozens  into  single  rooms,  they  are  given  damp 
dwellings,  cellar  dens  that  are  not  waterproof  from  below,  or  gar- 
rets that  leak  from  above.  Their  houses  are  so  built  that  the  clam- 
my air  cannot  escape.  The  view  from  the  bridge  is  characteristic 
of  the  whole  district.  At  the  bottom  flows,  or  rather  stagnates, 
the  Irk,  a  narrow,  coal-black,  foul-smelling  stream,  full  of  debris 
and  refuse,  which  it  deposits  on  the  shallower  right  bank.  Every- 
where heaps  of  debris,  refuse  and  offal ;  standing  pools  for  gutters, 
and  a  stench  which  alone  would  make  it  impossible  for  a  human 
being  in  any  degree  civilized  to  live  in  such  a  district.  The  whole 
side  of  the  Irk  is  built  in  this  way,  a  planless,  knotted  chaos  of 
houses,  more  or  less  on  the  verge  of  uninhabitableness,  whose  un- 
clean interiors  fully  correspond  with  their  filthy  external  surround- 
ings. In  truth  it  cannot  be  charged  to  the  account  of  these  helots 
of  modem  society  if  their  dwellings  are  not  more  cleanly  than  the 
pigsties  which  are  here  and  there  to  be  seen  among  them.  My  de- 
scription is  far  from  black  enough  to  convey  a  true  impression  of 
the  filth,  ruin,"  and  uninhabitableness,  the  defiance  of  all  considera- 
tions of  cleanliness,  ventilation,  and  health  which  characterize  this 
district. 

e)     Packingtown  as  a  Residential  Section^^ 

BY  A.   M.  SIMONS 

From  the  general  air  of  hoggishness  that  pervades  everything 
from  the  general  manager's  offices  down  to  the  pens  beneath  the 
buildings  and  up  to  the  smoke  that  hangs  over  it  all,  the  whole 

^"Adapted  from  The  Condition  of  the  Working  Class  in  England  in  1844, 
49-53  (1848). 

"Adapted  from  Packingtown,  2-19.    Published  by  Charles  H.  Kerr  &  Co. 


PROJECTS  OF  SOCIAL  REFORM  735 

thing  is  purely  capitalistic.  One's  nostrils  are  assailed  at  every 
point  by  the  horribly  penetrating  stench  that  pervades  everything. 
Great  volumes  of  smoke  roll  from  the  forest  of  chimneys  at  all 
hours  of  the  day,  and  drift  down  over  the  helpless  neighborhood  like 
a  deep  black  curtain  that  fain  would  hide  the  suffering  and  misery 
it  aggravates.  The  foul  packing-house  sewage,  too  horribly  offens- 
ive in  its  putrid  rottenness  for  further  exploitation  even  by  monop- 
olistic greed,  is  spewed  forth  in  a  multitude  of  arteries  of  filth  into 
a  branch  of  the  Chicago  River  at  one  comer  of  the  Yards,  where 
it  rises  to  the  top  and  spreads  out  in  a  nameless  indescribable  cake 
of  festering  foulness  and  disease-breeding  stench.  On  the  banks 
of  this  sluiceway  of  nastiness  are  several  acres  of  bristles  scraped 
from  the  backs  of  innumerable  hogs  and  spread  out  to  allow  the 
still  clinging  animal  matter  to  rot  away  before  they  are  made  up 
into  brushes.  Tom  Carey,  now  alderman  of  this  ward,  owns  long 
rows  of  some  of  the  most  unhealthy  houses  in  this  deadly  neighbor- 
hood. These  houses  have  no  connection  with  the  sewers,  and  un- 
der some  of  them  the  accumulation  of  years  of  filth  has  gathered 
in  a  semi-liquid  mass  from  two  to  three  feet  deep.  Shabbily  built 
in  the  first  place  and  then  subjected  to  years  of  neglect,  they  are 
veritable  death-traps.  A  cast-iron  pull  with  the  Health  Depart- 
ment renders  him  safe  from  any  prosecution.    . 

f)     Hallelujah  on  the  Butn^^ 

"O,  why  don't  you  work  "O,  I  like  my  boss — 

Like  other  men  do  ?"  He's  a  good  friend  of  mine ; 

"How  in  hell  can  I  work  That's  why  I  am  starving 

When  there's  no  work  to  do?  Out  in  the  bread-line. 

Chorus: 

"Hallelujah,  Fm  a  bum,  **I  can't  buy  a  job 

Hallelujah,  bum  again.  For  I  ain't  got  the  dough. 

Hallelujah,  give  us  a  handout —  So  I  ride  in  a  box-car, 

To  revive  us  again."  For  I'm  a  hobo. 

"O,  why  don't  you  save  "Whenever  I  get 

All  the  money  you  earn  ?"  All  the  money  I  earn, 

"If  I  did  not  eat  The  boss  will  be  broke, 

I'd  have  money  to  bum.  And  to  work  he  must  turn." 

^*Songs  of  the  Workers,  34-    Published  by  the  Industrial  Worker.    The 
tune  is  "Revive  Us  Agfain." 


736  CURRENT  ECONOMIC  PROBLEMS 

356.    Expanding  Wants  and  Social  Unrest^^ 

BY  A  CAPE  COD  FISHERMAN 

Yes,  that's  the  trouble.  My  father  wanted  fifteen  things.  He 
didn't  get  'em  all.  He  got  about  ten,  and  worried  considerable  be- 
cause he  didn't  get  the  other  five.  Now,  I  want  forty  things,  and 
I  get  thirty,  but  I  worry  more  about  the  ten  I  can't  get  than  the 
old  man  used  to  about  the  five  he  couldn't  get. 

B.     INDIVIDUALISTIC  SCHEMES  OF  REFORM 
•  357'     Scrub-Humanity^* 

BY  SOLON  LAUER 

I  confess  that  I  have  never  experienced  this  "love  of  mankind" 
which  lies,  or  is  said  to  lie,  at  the  root  of  so  much  benevolence. 
Most  men  do  not  please  me.  Masses  of  them  stink,  and  offend  me. 
I  am  not  called  to  minister  unto  such  as  these.  Your  mongrel  stock, 
your  blotched  and  scrub-eared  curs,  your  flea-bitten  sots,  your 
drenched  smokers  and  chewers  and  swearers,  your  loafers,  your 
sensualists,  with  bleary  eyes  and  blotched  faces — away  with  them ! 
Do  not  ask  me  to  love  them.  I  cannot  bear  them.  I  have  no  dollars 
to  nourish  their  vices.  I  have  no  old  clothes  for  the  like  of  them. 
I  will  not  contribute  to  your  free  lodgings  for  swine.  Let  them 
find  some  wallow  where  they  may  roll  in  their  favorite  mud !  Love 
them?  I  would  sweep  them  into  the  public  sewers,  with  the  other 
refuse  of  the  city,  but  that  I  know  Nature  hath  another  use  for  them. 
She,  who  converts  carrion  into  banks  of  violets,  will  in  her  own 
good  way  convert  these  swine  into  something  other  and  higher; 
but  She  has  not  asked  me  to  help  her  in  this  work!  If  she  needs 
your  aid,  good  philanthropist,  give  it;  but  come  not  to  me.  /  per- 
ceive that  no  man  can  save  another  wherein  he  most  needs  saving. 

This  "humanity,"  which  the  tender  philanthropist  loves  (at  a 
distance)  and  seeks  to  save,  with  his  often  misplaced  benefactions, 
is  to  me  no  airy  Phantom,  no  mere  abstract  Apparition.  I  have 
lived  with  it,  worked  with  it,  eaten  and  drunken  with  it,  lodged  with 
it ;  and  I  know  it  for  the  most  part  to  be  a  most  undesirable  fellow 
for  comradeship.  Its  breath  is  foul ;  its  clothing  is  redolent  of  vari- 
ous odors;  its  speech  is  coarse  and  vulgar;  its  thoughts  are  not 
high; — the  perfume  of  an  unfolding  brain-flower, — but  are  for  the 
most  part  mere  cerebrations,  mere  vaporings  of  passion,  mere  ebuUi- 

"Quoted  in  Brooks's  Social  Unrest,  96-97  (1903). 

"From  Social  Laws,  112-113.  Published  by  the  Nike  Publishing  Co. 
(1901). 


PROJECTS  OF  SOCIAL  REFORM  737 

tions  of  brute  instincts.  It  is  poor  because  it  is  low,  and  no  riches 
could  ever  elevate  it  above  its  chosen  state.  Give  it  dollars,  it  will 
spend  them  upon  its  vices  chiefly.  It  will  not  seek  virtue  first,  as 
the  chief  est  wealth  of  the  soul,  but  wants  dollars,  dollars,  which 
represent  to  it  more  beer,  more  tobacco,  more  sensuality,  more  time 
to  loaf  on  the  street. 

Is  my  picture  unwelcome?  It  is  no  fancy  picture,  but  painted 
from  life.  My  art  cannot  convert  loafers  into  typical  saints.  If 
your  philanthropy  can  do  so,  I  shall  not  object  to  it. 


358.    The  Promise  of  Co-operation^^ 

BY  FRANCIS  G.  PEABODY 

Industrial  co-operation  is  regarded  just  now  by  many  people  as 
an  antiquated  and  abandoned  scheme.  Its  advantages  are  moderate 
in  their  dimensions  and  slow  in  their  arrival.  It  calls  for  much 
patience  and  economy.  It 'takes  the  world  as  it  is  and  makes  the 
best  of  it,  instead  of  condemning  it  as  incapable  of  good.  For  all 
these  reasons  co-operation  is  unattractive  to  those  who  expect  a 
wholesale  and  immediate  transformation  of  the  industrial  order.  To 
such  minds  revolution  looks  more  promising  than  evolution ;  patience 
seems  more  like  a  vice  than  a  virtue;  and  economy  seems  to  tempt 
the  worker  to  submission  rather  than  to  inflame  him  with  discon- 
tent. "Beware  of  thrift,"  a  revolutionist  has  said,  "it  is  the  work- 
ingman's  enemy;  let  him  spend  what  he  gets  and  demand  more." 

The  world  of  industry,  as  it  might  be  organized  under  co-oper- 
ation, would  in  its  outward  form  seem  not  unlike  the  Co-operative 
Commonwealth  proposed  by  socialists.  Capitalism  would  be  sup- 
planted by  common  ownership ;  and  the  profits  of  production  would 
accrue  to  the  wage-earners  themselves. 

Yet  in  their  spirit  the  two  movements  have  hitherto  had  little 
in  common.  They  have  stood,  back  to  back,  looking  out  on  different 
worlds.  One  has  welcomed  a  practical  movement  toward  industrial 
justice,  even  though  it  might  not  realize  all  its  dreams ;  the  other 
has  found  such  partial  measures  obstructive  of  the  comprehensive 
plan  of  revolution  and  tempting  working  people  to  an  ignoble  peace. 

It  must  be  admitted  that  the  history  of  co-operation  in  the 
United  States  goes  far  to  justify  either  skepticism  or  hostility.  With 
few  exceptions  it  has  been  a  history  of  failure.  Yet  the  student 
finds  his  attention  arrested  by  the  fact  that  in  all  the  progressive 

"Adapted  from  the  Introduction  to  Ford's  Co-operation  in  New  England, 
v--xiii.    Copyright  by  the  Russell  Sage  Foundation  (1912). 


738  CURRENT  ECONOMIC  PROBLEMS 

countries  of  Europe  the  co-operative  system  has  played  a  notable 
part  both  in  advancing  the  welfare  and  in  consolidating  the  organi- 
zation of  wage-earners.  In  England,  Ireland,  Belgium,  France, 
Italy,  and  Denmark,  distributive  stores,  agricultural  production, 
banking,  farming,  building — all  these  types  of  co-operative  industry 
present  examples  of  mutual  advantage,  popular  education,  and  social 
hope.  The  single  instance  of  the  British  organization  with  its  mem- 
bership, in  191 1,  of  2,640,091,  in  1,407  distributive  societies,  and  its 
wholesale  business  of  £35,744,069  of  sales,  and  £1,000,518  of  profits 
is  enough  to  demonstrate  the  capacity  of  plain  people  to  conduct 
great  business  affairs. 

In  the  presence  of  such  facts  it  is  impossible  to  dismiss  co- 
operation as  unimportant  or  ineffective.  The  history  of  abortive 
undertakings  in  the  United  States  seems  to  point  to  unpropitious 
circumstances  or  unfaithful  administration  rather  than  to  inherent 
defects  in  the  plan ;  and  the  student  of  industrial  conditions  seems 
called  to  inquire,  not  whether  co-operation  can  succeed,  but  what 
the  special  causes  in  the  United  States  are  which  have  made  it  so 
often  fail. 

What,  then,  are  the  most  elemental  conditions  in  industrial 
co-operation?  The  first  condition  is  that  of  independence.  The 
co-operative  plan  must  not  be  tied  up  with  other  and  more  dubious 
undertakings,  whose  failure  may  involve  the  wreck  of  co-operation. 
In  America  communism,  vegetarianism,  pietism,  feminism,  have  all 
annexed  co-operation  to  their  programs,  and  their  abortive  colonies 
have  involved  in  their  fall  much  disrepute  for  co-operative  indus- 
try. Co-operation  is  too  admirable  a  scheme  to  be  made  a  bait  for 
converts  to  Utopia. 

The  second  condition  is  a  considerable  degree  of  fixity  in  resi- 
dence. One  joins  a  co-operative  society,  paying  an  entrance  fee  in 
the  expectation  of  later  profits.  He  has  to  wait  for  his  dividend. 
The  habit  of  buying  at  the  co-operative  store  becomes  gradually 
fixed  in  his  family,  and  devotion  to  the  cause  is  gradually  strength- 
ened by  an  increasing  appreciation  of  advantage.  All  this  gather- 
ing tradition  of  loyalty  is  hard  to  develop  among  the  ordinary 
conditions  of  American  life.  We  are  for  the  present  a  nation  of 
nomads.  This  fluidity  in  population,  however,  is  not  likely  to  last. 
Whenever,  therefore,  a  reasonable  fixity  of  residence  has  been 
reached,  an  opportunity  of  free  organization  for  mutual  help  will 
have  arrived. 

A  third  condition  to  success  is  desire  to  save.  The  plan  pro- 
poses a  bonus  on  thrift.  Distributive  stores  under  co-operation, 
instead  of  underselling  other  traders,  often  accept  market  rates  and 


PROJECTS  OP  SOCIAL  REFORM  739 

reserve  the  earnings  for  distribution  to  purchasers.  The  wholesale 
societies  are  themselves  the  property  of  the  distributive  stores,  so 
that  the  profits  filter  down  through  the  stores  to  the  individual 
members.  Thus  the  expectation  of  dividend  becomes  the  economic 
basis  of  loyalty.  The  co-operator  cherishes  the  faith  that  a  penny 
saved  is  a  penny  earned.  The  American  people  are  beyond  all 
comparison,  and  from  richest  to  humblest,  the  most  unthrifty  and 
extravagant  in  the  world.  Sooner  or  later,  however,  even  so  light- 
hearted  and  unprecedentedly  prosperous  a  people  as  we  will  have 
to  learn  the  ancient  lesson  of  economy.  Thrift  will  eventually  turn 
out  to  be  more  lucrative  than  luck.  The  chances  of  gain  will  dimin- 
ish, and  the  rewards  of  saving  will  increase.  Whenever  that  time 
arrives  the  co-operative  scheme  will  attract  fresh  attention. 

A  final  condition  of  success  is  a  supply  of  what  the  advocates  of 
the  movement  call  "co-operative  men."  The  scheme  depends  on 
fidelity,  integrity,  and  disinterestedness.  A  completely  self-seeking 
man  cannot  be  a  good  co-operator.  Co-operation  presupposes  com- 
mon sense,  forbearance,  and  co-operative  spirit,  and  can  be  success- 
ful only  where  such  qualities  exist.  Co-operation  is,  in  fact,  a  form 
of  moral  education,  an  expression  of  social  ethics,  a  way  of  trade, 
that  might  write  over  its  stores :  "Bear  ye  one  another's  burdens" ; 
"Ye  are  members  one  of  another." 

This  condition  of  co-operation  prescribes  its  own  limitations. 
It  is  applicable  only  to  the  more  thoughtful  and  intelligent  of  wage- 
earners.  The  ignorant,  the  thriftless,  and  the  short-sighted  it  ex- 
cludes. Moral  responsibility,  a  sense  of  loyalty,  a  willingness  to 
sacrifice  for  the  cause,  are  essential  to  business  success.  Yet  this 
moral  demand  is  precisely  what  gives  to  co-operation  its  peculiar 
place  in  the  industrial  world. 

359.     "U.  S.  Steel"  and  Labor^« 

BY  RAYNAL  C  BOI.UNG 

The  officers  of  the  United  States  Steel  Corporation  and  its  sub- 
sidiary companies  are  not  indifferent  or  self-satisfied  as  to  con- 
ditions among  their  v.'orkmen.  They  are  trying  to  improve  those 
conditions  as  fast  as  it  is  practicable  to  do  so.  They  do  not  main- 
tain that  the  lot  of  the  steel-worker  is  easy  or  ideal;  but  they  do 
maintain  that  their  workmen  are  treated  as  well  on  the  whole  as 
the  workmen  in  any  other  industry-  and  treated  far  better  than  ever 
before  in  the  steel  industry. 

*•  Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XLII,  38-46.    Copyright  (1912). 


740  .         CURRENT  ECONOMIC  PROBLEMS 

The  United  States  Steel  Corporation  has  made  it  possible  for 
every  employee,  even  down  to  the  ordinary  laborer,  to  become  an 
owner  of  its  stock.  In  its  iron  mines,  a  thousand  feet  underground, 
I  have  seen  men  working  with  pick  and  shovel  who  proved,  when 
questioned,  to  be  stockholders  in  the  company.  Over  30,000  of  the 
workmen  are  thus  interested  in  the  business.  These  employee  stock- 
holders derive  the  following  special  benefits  from  the  plant:  (i) 
They  are  induced  to  save  money,  often  for  the  first  time  in  their 
lives.  (2)  For  five  years  they  receive  a  very  high  return  upon 
their  investments,  and  thereafter  a  large  return  for  such  small  in- 
vestments. (3)  They  are  induced  to  feel  a  direct  interest  in  the 
business  and  to  remember  that  their  own  interests  are  tied  up 
with  those  of  the  company.  (4)  They  are  encouraged  to  remain 
with  the  company  and  to  profit  by  permanent  employment. 

Before  there  was  any  law  in  this  country  which  required  any- 
thing of  the  kind,  the  United  States  Steel  Corporation  established  a 
system  of  voluntary  accident  relief  absolutely  regardless  of  legal 
liability.  Every  man  injured  and  the  family  of  every  man  killed 
is  taken  care  of  without  need  of  lawsuits  or  even  of  any  claims 
against  the  companies.  Last  year  we  were  sued  in  only  two-tenths 
of  one  per  cent  of  the  cases-^showing  how  satisfactory  this  plan 
has  proved  to  our  workmen. 

The  United  States  Steel  Corporation  has  spent  six  years  in  the 
development  of  a  system  of  preventing  accidents,  which  I  confi- 
dently believe  is  not  surpassed  anywhere  in  the  United  States  or 
abroad.  The  system  which  has  been  worked  out  comprehends  all 
manner  of  safety  devices  and  other  material  safeguards,  but,  above 
all,  it  is  based  upon  the  development  of  an  earnest,  constant  and 
determined  effort  to  prevent  work  accidents — all  the  way  from  the 
president  down  to  the  lowest  workman. 

In  six  years  the  number  of  serious  and  fatal  accidents  among 
workmen  of  the  United  States  Steel  Corporation  has  been  reduced 
forty-three  per  cent,  and  more  than  2,000  men  each  year  are  saved 
from  injury  or  death  in  work  accidents  which  would  have  hap- 
pened to  them  under  old  conditions. 

At  all  our  mills,  mines  and  plants  provision  is  made  for  the  best 
surgical  and  hospital  treatment  obtainable  for  employees  injured 
in  our  work.  In  the  mining  regions  the  arrangements  include  med- 
ical attention  for  the  men  and  for  their  families. 

By  an  arrangement  under  which  $8,000,000  is  being  added  to 
the  $4,000,000  originally  given  by  Mr.  Andrew  Carnegie,  there  has 
been  provided  a  permanent  fund  of  $12,000,000,  from  the  income 
of  which  all  superannuated  employees  of  the  United  States  Steel 


PROJECTS  OF  SOCIAL  REFORM  741 

Corporation  who  have  remained  twenty  years  in  its  service  are 
assured  support  for  the  rest  of  their  lives.  The  smallest  pension 
given  is  $12  a  month  and  the  largest  $100 — thus  the  lowest  paid 
workman  will  receive  enough  to  provide  for  his  necessities  and  the 
high-salaried  employees  do  not  become  a  drain  on  the  fund. 

The  most  recently  organized  work  for  improving  conditions 
among  employees  of  the  Steel  Corporation  is  in  sanitation  and  wel- 
fare. This  work  is  being  organized  in  the  same  manner  in  which 
the  system  of  accident  prevention  has  been  worked  out  and  with 
the  same  theory  of  bringing  these  matters  home  to  the  heads  of 
departments,  superintendents  and  foremen,  and  above  all,  to  the 
men   themselves. 

This  work  includes  sanitary  disposal  of  sewage  and  fecal  matter, 
provision  for  pure  water  in  all  plants  and  houses,  the  protection  of 
food  supplies,  especially  milk  and  meat,  and  the  installation  of 
wash-rooms,  shower-baths  and  lockers  for  a  change  of  clothing. 

All  our  companies  are  donors  to  hospitals,  churches,  clubs,  li- 
braries and  other  organizations  established  by  the  communities  and 
the  workmen.  It  is  the  aim  of  our  managers  to  make  their  plants 
a  benefit  to  the  communities  in  many  ways  additional  to  the  wages 
paid  the  workmen. 

Few  people  know  how  much  our  plant  managers  spend  in  car- 
rying employees  through  hard  times  when  there  is  not  work  enough, 
in  furnishing  groceries  and  coal,  in  paying  rent  and  insurance  to 
assist  sick  employees,  in  giving  a  little  Christmas  cheer  to  those 
who  are  in  misfortune. 

Please  do  not  understand  me  to  say  that  all  of  these  things  are 
done  in  all  the  subsidiarv'  companies  or  in  any  of  them.  Many  of 
these  things  are  done  in  all  of  the  companies,  and  all  these  and 
other  means  of  making  better  the  conditions  of  its  workmen  are  on 
trial  and  under  consideration  somewhere  in  the  Steel  Corporation, 
with  the  hope  and  the  purpose  of  eventually  bringing  all  the  com- 
panies and  all  the  plants  to  the  best  standards. 

The  hours  of  labor  in  the  steel  mills  of  this  country  grew  up 
with  the  industry.  They  were  not  established  by  the  United  States 
Steel  Corporation,  and  they  can  only  be  changed  "slowly  where 
changes  are  shown  to  be  practicable  and  desirable. 

The  twelve-hour  day  exists  among  only  twenty-five  per  cent  of 
the  workmen  employed  by  the  United  States  Steel  Corporation,  al- 
though in  the  blast  furnaces  and  rolling  mills,  to  which  the  twelve- 
hour  day  is  largely  confined,  probably  half  the  workmen  have  a 
tv/elve-hour  day,  more  or  less  modified  by  periods  of  rest.  The 
steel  industry  adopted  the  two-turn  svstem  long  before  the  United 


742  CURRENT  ECONOMIC  PROBLEMS 

States  Steel  Coqjoration  was  organized.  The  same  system  pre- 
vails in  Germany,  where  labor  conditions  have  probably  been  made 
the  subject  of  more  state  supervision  than  anywhere  else  in  the 
world.  Personally,  I  am  satisfied  that  the  lightening  of  labor  by 
machinery  and  the  rest  periods  prevent  the  twelve-hour  day  from 
doing  any  physical  injury  to  the  workmen.  Since  the  Steel  Corpor- 
ation was  organized  the  price  of  its  products  has  been  reduced  on 
the  average  about  ten  dollars  a  ton.  Meanwhile,  wages  have  been 
increased  twenty-five  per  cent.  Yet  the  efficiency  of  labor  has  not 
increased.  It  would  be  easy  to  substitute  an  eight-hour  day  for 
twelve  hours  if  the  workman  could  accept  two-thirds  his  present 
wages,  but  the  workman,  like  everyone  else,  prefers  longer  hours 
to  lower  wages;  and  there  are  more  applicants  for  twelve-hour 
positions  than  for  those  where  the  work  is  only  ten  hours,  because 
the  former  pay  better.  This  is  an  economic  problem  which  con- 
fronts the  industry  and  time  is  required  for  its  solution. 

The  question  of  organization  among  the  workmen  in  the  steel 
industry  is  too  large,  too  serious  and  too  difficult  a  subject  to  dis- 
cuss in  a  small  portion  of  a  short  address.  It  is  a  subject  where 
discussion  too  often  engenders  ill  feeling  and  most  unfortunate 
bitterness,  where  differences  of  opinion  are  seldom  accepted  with 
patience  or  tolerance  on  either  side.  For  myself,  I  believe  we  must , 
get  rid  of  lawlessness  and  of  violence  and  oppression  on  both  sides 
and  wherever  they  appear.  I  believe  no  agreement  can  be  reached 
until  the  two  parties  are  both  prepared  to  seek  an  agreement  on 
the  basis  of  mutual  advantages  offered  and  of  equal  responsibilities 
assumed. 

360.    Labor  and  "U.  S.  Steel"" 

BY  JOHN  A.  FITCH 

A  discussion  of  the  subject  "Industrial  Combinations  and  the 
Wage  Earner"  with  reference  to  the  Steel  industry,  may  well  take 
the  form  of  an  ansv/er  to  the  inquiry,  "Has  the  formation  of  the 
United  States  Steel  Corporation  proven  a  good  thing  for  labor  or 
the  reverse?" 

The  reasons  for  choosing  the  United  States  Steel  Corporation 
are  both  logical  and  obvious,  I  believe.  It  is  the  greatest  combina- 
tion in  the  industry ;  it  has  more  money  to  spend  on  improvements 
than  any  other,  and  so  furnishes  the  most  favorable  basis  for  judg- 

^' Adapted  from  an  article  in  the  Annals  of  the  American  Academy  of 
Political  and  Social  Science,  XLII,  10-19,    Copyright  (1912). 


PROJECTS  OF  SOCIAL  REFORM  743 

ment  as  to  the  effect  of  such  combinations;  and  it  employs  over 
20O,cxx)  workmen,  while  its  largest  competitor  employs  less  than 
20,000. 

It  may  be  well  first  to  consider  briefly  who  the  steel  workers  are. 
Not  over  twenty  per  cent  of  the  employees  in  blaSt  furnaces  and 
rolling  mills  can  be  regarded  as  highly  skilled.  Twenty  to  twenty- 
five  per  cent  more  may  be  termed  semi-skilled,  and  the  remaining 
fifty-five  to  sixty  per  cent  are  unskilled  laborers.  Roughly,  the 
gradations  in  skill  correspond  to  gradations  in  nationality.  You  will 
not  find  an  Anglo-Saxon  among  the  unskilled ;  you  will  hardly  find 
one  in  ten  who  is  American  bom.  Sixty  per  cent  of  them  are  un- 
naturalized and  a  third  are  unable  to  speak  the  English  language. 

The  steel  industry  has  had  an  increasing  demand  for  the  raw 
South-European  immigrants,  and  there  is  reason  to  believe  that  the 
demand  will  be  larger  as  time  goes  on. 

Let  us  turn  next  to  labor  conditions.  Employees  in  sheet  and  tin 
mills  work  in  three  shifts  of  eight  hours  each.  Yard  laborers,  shop 
men,  and  tube-mill  workers  have  a  ten-hour  day.  In  the  actual 
manufacturing  processes,  however,  and  in  the  rolling  of  rails,  beams, 
and  plates,  the  regular  working  day  is  twelve  hours.  Fully  fifty  per 
cent  of  the  men  in  the  industry  have  a  twelve-hour  day.  The  em- 
ployees in  several  departments  work  seven  days  a  week.  The  situa- 
tion is  aggravated  by  the  night  crew  of  one  week  becoming  the  day 
crew  during  the  next  week.  The  change  in  shifts  forces  a  crew  to 
remain  on  duty  24  hours  once  in  two  weeks. 

It  is  difficult  to  make  a  statement  regarding  wages,  because  the 
wage  schedule  of  a  steel  mill  is  a  very  complex  affair.  In  1907  I 
was  given  wage  figures  from  the  pay  roll  of  a  Steel  Corporation 
mill  in  the  Pittsburgh  district  The  figures  included  all  of  the  men 
in  five  departments  of  a  steel  mill,  including  every  necessary  step 
in  the  process  of  turning  pig  iron  into  a  finished  sted  product. 
There  were  2,304  men  included,  and  they  were  grouped  according 
to  earnings  as  follows :  125,  or  approximately  five  per  cent,  re- 
ceived over  $5  a  day ;  524,  or  twenty-three  per  cent,  received  be- 
tween $2.50  and  $5.00,  and  1,655,  or  seventy-two  per  cent,  re- 
ceived $2.50  a  day  or  less. 

In  May,  1910,  a  general  wage  increase  w^as  announced  by  the 
Steel  Corporation,  which  was  described  as  averaging  six  per  cent. 
This  increase,  so  far  as  common  labor  is  concerned,  amounted  to 
one  cent  an  hour.  The  rate  in  1908  was  16  1-2  cents  an  hour  in 
the  Pittsburgh  district,  and  it  is  now  17  1-2  cents.  This  is  the  high- 
est rate  paid  by  the  Steel  Corporation.  In  its  Chicago  mills  the 
rate  is  17  cents,  and  in  its  Birmingham,  Alabama,  mills  it  is  13  to 
14  cents. 


744  CURRENT  ECONOMIC  PROBLEMS 

Professor  Chapin,  in  his  study  made  for  the  Russell  Sage  Foun- 
dation, decided  that  a  decent  standard  of  living  could  not  be  main- 
tained in  New  York  City  by  a  family  of  five  persons  on  an  annual 
income  of  less  than  $800,  and  that  there  is  no  assurance  that  it  can 
be  maintained  on  an  income  below  $900.  No  unskilled  steel  worker 
in  America  can  earn  even  $800  a  year  on  the  rate  that  is  being  paid 
today. 

I  now  come  to  what  I  shall  call  the  ameliorative  efforts  of  the 
Steel  Corporation — the  things  regarded  by  the  Corporation  as  done 
on  the  credit  side  of  the  account. 

First  in  this  list  I  shall  place  the  campaign  for  safety.  In  the 
past  the  steel  industry  has  had  an  unenviable  record  of  accidents 
to  workmen.  However,  much  has  been  done  in  the  installation  of 
safety  devices  and  the  inculcation  of  habits  of  caution.  The  hos- 
pital service  is  generally  good.  The  pension  fund  of  $4,000,000 
left  by  Andrew  Carnegie  and  a  fund  of  the  American  Steel  and  Wire 
Company,  one  of  the  constituents  of  the  corporation,  have  been 
consolidated  and  the  capital  increased  to  $12,000,000,  the  income  to 
be  used  to  pension  superannuated  or  disabled  employees  of  the  cor- 
poration. 

The  steel  industry  was  never  thoroughly  unionized,  although 
prior  to  the  formation  of  the  Steel  Corporation  there  was  a  consid- 
erable amount  of  unionism  in  the  Pittsburgh  district.  The  Carnegie 
Company  had  eliminated  unionism  from  its  plants  in  1892,  and  of 
the  large  plants  rolling  rails  and  structural  material,  the  Illinois 
Steel  Company  was  the  only  one  entering  the  corporation  with  union 
labor.  Soon  afterward,  however,  in  1901,  the  plants  of  this  com- 
pany were  freed  from  unionism  through  a  strike.  During  this  strike 
the  executive  committee  of  the  corporation  adopted  a  resolution  in 
opposition  to  organized  labor  and  declared  that  it  would  not  permit 
its  extension.  After  this  it  apparently  adopted  a  policy  looking  to 
the  extermination  of  organized  labor.  As  a  result  union  labor  has 
now  been  eliminated  from  all  its  properties,  with  the  possible  excep- 
tion of  its  railroads.  The  corporation  is  absolutely  opposed  to  collec- 
tive bargaining  and  has  adopted  a  number  of  plans  calculated  to 
prevent  an  outbreak  of  organization  on  the  part  of  its  employees. 

The  pension  plan,  although  a  desirable  thing  in  itself,  has  the 
effect  of  keeping  men  silent  who  might  wish  to  protest  against  ex- 
isting conditions.  In  order  to  enjoy  its  benefits,  the  men  must  have 
served  twenty  years  continuously  in  the  employ  of  the  corporation 
or  of  one  of  its  subsidiaries.  This  effectively  prevents  any  stoppage 
of  work  as  a  protest  against  anything  considered  unjust  by  the 
workmen,  if  they  would  keep  their  record  such  as  to  enable  them 


PROJECTS  OF  SOCIAL  REFORM  745 

to  draw  the  pension  in  old  age.  The  pension  rules  also  specifically 
set  forth  the  obvious  truth  that  the  Corporation  does  not  give  up 
its  right  to  discharge  its  employees.  There  is  nothing  in  it  to  pre- 
tect  a  man  excepting  his  subservience  to  his  superior  officers,  and 
the  nearer  he  approaches  toward  twenty  years  of  continuous  ser- 
vice, the  greater  his  subservience  may  conceivably  be — for  he  might 
be  discharged  at  the  end  of  nineteen  years  and  eleven  months  and 
his  right  to  the  pension  w-ould  be  forfeited. 

The  so-called  profit-sharing  plan  also  has  features  designed  to 
keep  the  employee  from  standing  out  vigorously  in  defense  of  what 
he  may  consider  his  rights.  The  rules  plainly  state  that  the  yearly 
$5  bonus  for  each  share  of  stock,  and  the  additional  bonus  at  the 
end  of  each  five-year  period,  are  to  go,  not  as  a  matter  of  right  to 
each  employee  who  holds  stock,  but  only  to  those  whom  the  ex- 
ecutive officials  may  consider  loyal. 

Under  these  two  systems,  then,  a  man  will  utterly  fail  of  secur- 
ing the  benefits  ofltered  if  he  is  offensive  to  the  administrative  of- 
ficials. He  may  take  his  choice  between  exercising  his  right  to 
register  his  objections  to  working  conditions  or  to  the  labor  con- 
tract and  run  the  risk  of  losing  his  right  to  the  benefits  offered, 
or  he  may  withhold  his  protests,  if  he  has  any,  and  establish  his 
reputation  for  loyalty  by  keeping  silent.  The  effect  of  this  attitude 
of  the  Corporation  tends,  in  a  great  many  instances,  to  outweigh 
anything  that  it  may  do  in  the  direction  of  providing  better  labor 
conditions. 

Unionism  is  a  very  faulty  and  often  a  dangerous  form  of  or- 
ganization. But  we  have  so  far  worked  out  no  better  method  of 
establishing  justice  in  industrial  matters  than  leaving  it  to  the 
bargaining  strength  of  the  two  parties  to  the  contract. 

C.     THE  SOCIALIST'S  INDICTMENT  OF  CAPITALISM 
361.     Marx's  Theory  of  the  Development  of  Capitalism^* 

BY  WERNER  SOMBART 

Marx  held  a  particular  view  concerning  the  period  of  history  in 
which  we  are  now.  living,  that  is  to  say,  concerning  the  age  of  Cap- 
italism, and  this  view  tried  to  show  the  justification  for  the  socialist 
movement.  He  showed  it  in  two  ways.  In  the  first  place,  he  at- 
tempted to  prove  that  the  present  capitalist  system,  by  virtue  of  its 

^•Adapted  from  Socialism  and  the  Social  Movement,  6th  ed.,  71-86.  Pub- 
lished by  E.  P.  Dutton  &  Co.  (1908). 


746  CURRENT  ECONOMIC  PROBLEMS 

inherent  qualities,  contained  within  itself  the  germs  of  its  own  de- 
cay; and,  in  the  second  place,  that  as  the  capitalist  system  decays  it 
creates  the  necessary  conditions  for  the  birth  of  socialist  society. 
These  ideas  may  be  thus  expressed.  The  capitalist  system,  in  its 
onward  flow,  develops  phenomena  which  prevent  the  smooth  work- 
ing of  the  great  producing  machine.  On  the  one  hand  we  have  in- 
creasing socialization  of  production — the  tendency  for  production 
to  be  more  and  more  on  a  large  scale ;  for  big  businesses  to  swallow 
up  smaller  ones — and  the  increasing  intensity  in  production.  On 
the  other  hand,  the  direction  of  production  and  its  distribution  are 
still  in  private  hands — in  those  of  the  capitalist  undertaker. 

These  tendencies  come  into  more  serious  opposition  as  time  goes 
on,  and  the  result  is  that  commercial  crises,  that  disease  to  which 
capitalist  organization  of  industry  is  so  liable,  appear  periodically, 
and  with  more  and  more  disastrous  results.  "Not  only  are  many 
of  the  commodities  already  produced  wholly  destroyed  in  these 
crises,  but  a  good  many  of  the  instruments  of  production  are  sub- 
ject to  a  similar  fate.  In  these  crises  a  social  epidemic  breaks  out 
such  as  in  all  earlier  ages  would  have  been  accounted  madness — 
the  epidemic  of  overproduction.  Society  finds  itself  for  the  time 
being  in  a  state  of  barbarism ;  it  is  as  though  a  famine  or  a  general 
war  of  extermination  had  cut  oflF  all  supplies  of  the  necessaries  of 
life.    Industry  and  commerce  seem  to  be  destroyed." 

The  inner  conflict  in  the  capitalist  organization  of  society  is  re- 
flected in  the  growing  opposition  between  the  two  classes  on  which 
that  organization  rests — between  the  bourgeoisie  and  the  prole- 
tariat. 

The  bourgeois  class,  owing  to  the  "centralization  of  capital,"  is 
represented  by  a  constantly  decreasing  number  of  capitalists,  and 
the  proletariat  by  a  constantly  increasing  mass  of  impoverished  in- 
dividuals who  sink  deeper  and  deeper  in  misery.  "The  modern 
worker,  instead  of  rising  with  the  advance  of  industry,  sinks  deeper 
and  deeper  because  of  the  conditions  which  his  own  class  imposes 
upon  him.  The  worker  becomes  a  pauper,  and  pauperism  develops 
even  more  quickly  than  population  or  wealth.  This  makes  it  abun- 
dantly clear  that  the  bourgeoisie  is  incapable  of  remaining  the  ruling 
class  in  society,  and  of  forcing  society  to  accept  the  conditions  of 
its  existence  as  a  general  law  regulating  the  existence  of  society  as 
a  whole.  The  bourgeoisie  is  incapable  of  bearing  rule  because  it  is 
unable  to  ensure  for  its  slaves  a  bare  existence,  because  it  is  forced 
to  place  them  in  a  position  where,  instead  of  maintaining  society, 
society  must  maintain  them,"  It  is  the  misery  here  mentioned  that 
produces  rebellion;  the  proletariat  rises  against  the  ruling  class. 


PROJECTS  OF  SOCIAL  REFORM  747 

And  it  is  able  to  do  this  because  it  has  been  "trained,  united  and 
organized"  by  "the  very  mechanism  of  the  process  of  capitalist  pro- 
duction." "The  hour  of  capitalist  property  has  struck.  Those  who 
have  expropriated  others  are  now  themselves  expropriated." 
"Society  will  openly  and  directly  take  possession  of  the  means  of 
production"  and  the  difficulties  inherent  in  the  capitalistic  system 
will  be  removed.  To  take  hold  of  power  in  this  way,  and  so  to  in- 
troduce a  new  economic  organization,  will  be  possible  because  all 
the  necessary  conditions  will  have  been  created  by  the  capitalist  or- 
ganization— "constantly  increasing  co-operation  in  labour,  applica- 
tion of  technical  knowledge,  the  derivation  of  the  maximum  produce 
from  the  soil,  the  transformation  of  the  instruments  of  labour  into 
such  as  may  be  used  in  common  by  many  workers,  the  inclusion 
of  all  peoples  in  the  net  of  the  world  market." 

This  broad  theory  of  evolution  comprises  a  number  of  single 
theories. 

(i)  The  Theory  of  Concentration  was  adopted  by  Marx  from 
Louis  Blanc.  Marx  enlarged  and  illustrated  it  in  a  most  brilliant 
fashion.  The  theory  lays  it  down  that  under  the  pressure  of  the 
competition  inherent  in  the  capitalist  system,  capitalist  undertaking 
completely  drives  out  the  methods  of  production  which  existed  in 
pre-capitalistic  times ;  it  swallows  up  the  small,  independent  produc- 
ers ;  and  then  "one  capitalist  destroys  many,"  or  "many  capitalists 
are  expropriated  by  a  few,"  i.  e.,  undertakings  on  a  large  scale  pre- 
vail more  and  more,  and  economic  development  tends  to  bring  about 
a  state  of  things  where  everything  is  controlled  from  one  centre. 

(2)  The  Theory  of  Socialization  is  closely  connected  with  that 
of  concentration.  It  asserts  that  capitalist  development  will  event- 
ually produce  all  the  conditions  necessary  for  bringing  about  a  so- 
cialist, or  communist,  order  of  economic  life.  In  other  words,  the 
theory  holds  that  the  elements  of  the  coming  economic  system  are 
maturing  within  the  frame-work  of  Capitalism.  This  theory,  which 
is  clearly  of  extreme  importance  for  the  foundation  of  the  realistic 
standpoint,  is  of  all  the  teachings  of  Marx  and  Engels  most  char- 
acteristically theirs.  Separating  its  component  parts,  it  may  be  de- 
scribed as  follows: 

By  utilizing  improved  processes  in  production  in  the  capitalist 
organization  of  industry,  it  is  possible  to  increase  the  productivity 
of  the  labour  of  society,  and  thus  develop  the  productive  powers  of 
society.  In  this  way,  "by  a  wise  distribution  of  work,  there  is  a 
possibility — for  the  first  time  in  the  history  of  marJcind — not  only 
of  producing  sufficient  for  the  necessary  subsistence  of  all  the  mem- 
bers of  society  and  for  setting  aside  a  reserve,  but  also  of  giving 


748  CURRENT  ECONOMIC  PROBLEMS 

each  one  sufficient  leisure,  so  that  what  is  of  value  in  culture,  sci- 
ence, art,  social  intercourse  and  so  forth,  may  continue,  and  be 
turned  from  being  a  monopoly  of  the  ruling  class  into  the  common 
possession  of  the  whole  of  society.  This  is  the  important  point. 
For  as  soon  as  the  productive  power  of  human  labour  has  developed 
thus  far,  there  is  no  longer  any  reason  for  the  existence  of  a  ruling 
class. 

(3)  The  Theory  of  Accumulation  lays  it  down  that  the  number 
of  great  capitalists  is  on  the  decrease. 

(4)  The  Theory  of  Pauperization  asserts  that  the  intellectual 
and  material  condition  of  the  proletariat  under  the  capitalist  system, 
instead  of  improving,  grows  constantly  worse  and  worse. 

(5)  The  Theory  of  Self-Destruction  asserts  that  Capitalism  is 
digging  its  own  grave.  The  occurrence  of  commercial  crises,  com- 
ing as  they  do  with  constantly  increasing  force,  proves  conclusively 
the  failure  of  the  prevailing  economic  system  to  maintain  its  pre- 
dominance. The  crises  are  the  symptoms  of  the  bankruptcy  of  the 
existing  social  order;  and  one  day  they  will  become  so  extensive 
that  recovery  will  become  quite  impossible. 

362.    The  Economic  Failure  of  Capitalism" 

BY  J.  RAMSAY  MACDONALD 

Commercialism  is  a  phase  in  the  evolution  of  industrial  organ- 
isation, and  is  not  its  final  form.  It  arose  when  nations  were  suffi- 
ciently established  to  make  national  and  international  markets  pos- 
sible, and  it  created  classes  and  interests  which  separated  them- 
selves from  the  rest  of  the  community  and  which  proceeded  to  but- 
tress themselves  behind  economic  monopolies,  social  privileges,  polit- 
ical power.  The  new  industrial  regime  supplanted  feudalism  when  the 
historical  work  of  feudalism  was  done  and  it  had  ceased  to  be  useful, 
and  proceeded  to  build  up  a  method  of  wealth  production  and  distri- 
bution regulated  by  nothing  but  the  desire  for  individual  success  and 
private  gain.  The  new  power  lost  sight  of  social  responsibilities  and 
social  coherence.  The  interests  of  the  individual  capitalist,  of  the 
class  of  capitalists,  of  the  property  owners,  were  put  first,  and  those 
of  the  community  as  a  whole  were  subordinated.  It  was  hoped, 
that  by  the  individual  capitalist  pursuing  his  own  interest  national 
well-being  would  be  served.  The  error  soon  reaped  its  harvest  of 
misery,  when  women  and  children  were  dragged  into  the  factories 
late  in  the  eighteenth  and  early  in  the  nineteenth  centuries,  when 
people  were  gathered  into  foul  industrial  towns,  and  when  only 

"The  Socialist  Movement,  94-99.    Copyright  by  Henry  Holt  &  Co.  (1911). 


PROJECTS  OF  SOCIAL  REFORM  749 

human  endurance  limited  the  length  of  the  working  day.  So  sep- 
arate had  become  the  interests  of  the  nation  from  those  of  the  prop- 
ertied classes  that  the  latter  found  profit  from  the  degradation  and 
deterioration  of  the  population.  It  mattered  not  to  the  cotton  own- 
er of  Lancashire  a  hundred  years  ago  what  became  of  the  children 
who  were  working  in  his  factories,  or  later  on,  what  became  of  the 
women  who  took  their  places.  When  one  "hand"  died  another 
"hand"  was  ready  to  step  into  his  place,  and  whether  his  life  was 
long  or  short,  sad  or  merry,  the  machines  which  he  tended  spun  out 
their  enormous  profits,  and  the  owner  saw  no  reason  to  believe  that 
the  day  of  his  prosperity  was  short. 

The  system  certainly  solved  the  problem  of  production.  Under 
its  whips  and  in  search  of  its  prizes,  mechanical  invention  proceeded 
apace,  labour  was  organised  and  its  efficiency  multiplied  ten,  twenty, 
an  hundred  fold.  Statistics  in  proof  of  this  live  with  the  wonder 
that  is  in  them.  That  twenty  men  in  Lancashire  to-day  can  make 
as  much  cotton  as  the  whole  of  the  old  cotton-producing  Lancashire 
put  together;  that  i,ooo  shoe  operatives  in  Leicester  can  supply  a 
quarter  of  a  million  people  with  four  pairs  of  boots  a  year;  that 
120  men  in  a  mill  can  grind  enough  flour  to  keep  200,000  people's 
wants  fully  supplied,  seem  to  come  from  the  pages  of  romance 
rather  than  from  the  sober  history  of  industry.  Commercialism  has 
written  those  pages,  and  they  are  its  permanent  contribution  to 
human  well-being. 

As  time  went  on,  however,  it  was  seen  that  this  wonderful  sys- 
tem of  production  was  quite  unable  to  devise  any  mechanism  of 
distribution  which  could  relate  rewards  to  deserts.  Distribution  was 
left  to  the  stress  and  uncertainty  of  competition  and  the  struggle 
of  economic  advantages.  The  law  of  the  survival  of  the  fittest  was 
allowed  to  have  absolute  sway,  under  circumstances  which  deprived 
it  of  moral  value.  The  result  was  that  national  wealth  was  heaped 
up  at  one  end  over  a  comparatively  small  number  of  people  and 
lay  thinned  out  at  the  other  end  over  great  masses  of  the  population. 
At  one  end  people  had  too  much  and  could  not  spend  it  profitably, 
at  the  other  end  they  had  too  little  and  never  gained  that  master\- 
of  things  which  is  preliminary  to  well-ordered  life.  Moreover,  even 
many  of  those  who  possessed  held  their  property  on  such  precarious 
tenure  that  possession  gave  them  little  security  and  peace  of  mind. 
Prosperity  was  intermittent  both  for  capital  and  labour. 

Then  conscious  effort  to  rectify  the  chaos  began  to  show  itself. 
The  national  will  protected  the  national  interests  through  factory 
and  labour  legislation,  and  at  the  same  time  the  chaos  within  the 


7SO  CURRENT  ECONOMIC  PROBLEMS 

system  was  being  modified  by  the  life  of  the  system  itself.  Com- 
petition worked  itself  out  in  certain  directions,  and  cooperation  in 
the  form  of  trusts  came  to  take  its  place,  as  nature  turns  to  hide 
up  the  traces  of  war  in  a  country  that  has  been  fought  over.  This 
new  organization  is  more  economical  and  may  steady  to  some  ex- 
tent the  demand  for  labour;  but  it  means  that  economic  power  is 
being  placed  in  the  hands  of  a  few.  That  is  too  dangerous  in  the 
eyes  of  the  Socialist.  Its  operation  is  too  uncertain.  From  his  very 
nature  the  monopolist  is  an  exploiter.  He  grasps  the  sceptre  of 
state,  as  well  as  the  sceptre  of  industry.  He  sits  in  Parliament  as 
well  as  in  the  counting-house.  He  becomes  a  powerful  citizen  as 
well  as  a  masterful  captain  of  industry.  He  raises  in  a  most  acute 
form  the  problem  of  how  the  community  can  protect  itself  against 
interests  being  created  round  its  exploitation  and  enslavement.  Com- 
petition solves  its  own  problems  and  leaves  those  of  monopoly  in 
their  place. 

Surveying  the  same  field  with  an  eye  on  the  moral  fruits  which 
it  has  borne,  the  Socialist  once  more  discovers  weeds  in  plenty. 
The  familiar  methods  of  adulteration  and  of  all  forms  of  sharp 
dealing,  both  with  work-people  and  with  customers,  pass  before  his 
eyes  in  disquieting  masses.  Honesty  on  this  field  is  not  the  best 
policy.  Materialist  motives  predominate.  Birth  and  honour  bow 
to  wealth.  Wealth  can  do  anything  in  "good"  society  to-day — even 
to  the  purchase  of  wives  as  in  a  slave  market.  A  person  may  be 
vulgar,  may  be  uncultured,  may  be  coarse  and  altogether  unpleas- 
ing  in  mind  and  manner  but,  if  he  has  money,  the  doors  of  honour 
are  thrown  open  to  him,  the  places  of  honour  are  reserved  for  his 
occupation.  The  struggle  for  life  carried  on  under  the  conditions 
of  commercialism  means  the  survival  of  sharp  wits  and  acquisitive 
qualities.  The  pushful  energy  which  brings  ledger  successes  sur- 
vives as  the  "fittest"  under  commercialism.  Capitalism  has  created 
a  rough  and  illworking  mechanism  of  industry  and  a  low  standard 
of  value  based  upon  nothing  but  industrial  considerations,  and  it  has 
done  its  best  to  hand  over  both  public  and  private  values  to  be 
measured  by  this  standard  and  to  be  produced  by  this  mechanism. 

But  the  controlling  influences  which  have  been  brought  to  bear 
upon  it — both  those  of  a  political  character  from  without  and  those 
of  an  industrial  character  from  within — are  the  foreshadowings 
of  a  new  system  of  organization.  Commercialism  lays  its  own 
cuckoo  tgg  in  its  nest.  Every  epoch  produces  the  thought  and  the 
ideals  which  end  itself.  Like  a  dissolving  view  on  a  screen,  com- 
mercialism fades  away  and  the  image  of  Socialism  comes  out  in 
clearer  outline. 


PROJECTS  OF  SOCIAL  REFORM  751 

D.    THE  CASE  FOR  SOCIALISM 
363.     The  Distinction  between  Socialism  and  Communism^" 

BY   M.  TUGAN-BARANOWSKY 

The  distinction  between  Socialism  and  Communism  is  commonly 
thought  to  lie  in  that  Socialism  demands  only  that  the  means  of  pro- 
duction be  transferred  to  the  community,  admitting  private  prop- 
erty in  objects  of  use,  whilst  Communism  claims  complete  abolish- 
ment of  private  property.  But  this  is  not  quite  correct.  In  the  first 
place  it  is  not  possible  to  draw  exact  boundaries  between  means  of 
production  and  objects  of  use.  Nor  is  it  correct  to  maintain  that 
Socialism  demands  the  socialization  of  all  implements  of  work,  or 
means  of  production.  Most  socialists  assign  to  every  family,  a 
separate  house,  involving  individual  possession  of  means  of  pro- 
duction, for  instance,  utensils,  tableware  and  books  not  read  for  a 
pastime.  Even  under  Socialism  certain  instruments  of  production 
retain  the  quality  of  private  property. 

But  there  are  a  great  many  objects  the  private  possessions  of 
which  collectivist  society  can  by  no  means  grant.  Many  things  serv- 
ing for  immediate  use  and  enjoyment,  museums,  gardens,  etc.,  al- 
ready form  objects  of  public  property.  Under  a  socialistic  arrange- 
ment this  class  will  be  considerably  expanded.  In  such  a  social  state 
there  will  be  three  classes  of  objects  of  use:  one  belonging  to  the 
community  as  such,  to  the  use  of  which  all  shall  have  free  access ; 
one  likewise  social  property,  the  individual  use  of  which  shall  be 
granted  for  a  certain  compensation;  and  one  shall  consist  of  objects 
possessed  by  individuals  as  private  property. 

But  even  communism  does  not  include  the  complete  disappear- 
ance of  property.  The  organization  of  social  production,  to  what- 
ever extent  it  may  develop,  will  find  on  its  way  many  an  object 
of  use,  which  owing  to  its  very  nature  must  be  left  in  individual 
possession,  for  instance  clothing.  However  broadly  the  principle  of 
Communism  may  be  carried  out,  it  will  never  succeed  in  dressing  two 
individuals  in  one  coat  at  one  and  the  same  time,  and  every  coat 
must  therefore  practically  be  the  property  of  him  who  wears  it. 

The  principle  distinction  between  Socialism  and  Communism 
cannot,  therefore,  lie  in  the  criterion  referred  to.  In  view  of  this 
fact  many  are  inclined  to  identify  the  two.  It  is,  however,  not  im- 
possible to  mark  out  the  point  of  difference  between  these  systems. 
Amongst  collectivist  systems  it  is  easy  to  discern  two  fundamental 

*' Adapted  from  Modern  Socialism  in  Its  Historical  Development,  14-18 
(190s). 


752  CURRENT  ECONOMIC  PROBLEMS 

types.  According  to  one  the  individual  income  is  adjusted  by  de- 
termining the  sum  total  the  individual  may  dispose  of  to  satisfy  his 
wants.  According  to  the  other  the  very  notion  of  income  as  a 
determined  value  is  rejected,  the  immediate  wants  only  being  regu- 
lated or  recognized  as  absolutely  free.  Under  the  order  of  the  first 
type  the  distribution  of  products  proceeds  by  means  of  a  money 
system,  were  it  but  an  ideal  one ;  every  individual  spends  his  in- 
come ;  everything  must  have  its  price.  In  other  words,  money  as  a 
standard  of  value  and  purchasing  power  represents  an  indispensable 
organ  of  distribution ;  whereas  in  the  organization  of  the  second 
type,  in  which  illimited  freedom  of  consumption  is  admitted,  and 
not  the  income,  but  the  use  it  is  put  to  is  being  controlled,  money 
as  an  instrument  of  distribution  is  not  at  all  necessary.  Social 
economy  of  the  first  type  supposes  the  use  of  money,  while  that  of 
the  second  type  has  no  use  for  money  at  all. 

364.     The  Central  Aim  of  Socialism^^ 

BY  THOMAS  KIRKUP 

The  central  aim  of  socialism  is  to  terminate  the  divorce  of  the 
workers  from  the  natural  sources  of  subsistence  and  of  culture. 
The  socialist  theory  is  based  on  the  historical  assertion  that  the 
course  of  social  evolution  for  centuries  has  gradually  been  to  ex- 
clude the  producing  classes  from  the  possession  of  land  and  capital, 
and  to  establish  a  new  subjection,  the  subjection  of  workers  who 
have  nothing  to  depend  on  but  precarious  wage-labour.  Socialists 
maintain  that  the  present  system  leads  inevitably  to  social  and 
economic  anarchy,  to  the  degradation  of  the  working  man  and  his 
family,  to  the  growth  of  vice  and  idleness  among  the  wealthy  classes 
and  their  dependants,  to  bad  and  inartistic  workmanship,  to  inse- 
curity, waste,  and  starvation ;  and  that  it  is  tending  more  and  more 
to  separate  society  into  two  classes,  wealthy  millionaires  confronted 
with  an  enormous  mass  of  proletarians,  the  issue  out  of  which  must 
either  be  .socialism  or  social  ruin.  To  avoid  all  these  evils  and  to 
secure  a  more  equitable  distribution  of  the  means  and  appliances 
of  happiness,  socialists  propose  that  land  and  capital,  which  are  the 
requisites  of  labour  and  the  sources  of  all  wealth  and  culture,  should 
be  placed  under  social  ownership  and  control. 

In  thus  maintaining  that  society  should  assume  the  management 
of  industry  and  secure  an  equitable  distribution  of  its  fruits,  social- 
ists are  agreed ;  but  on  the  most  important  points  of  details  they 
differ  very  greatly.     They  differ  as  to  the  form  society  will  take 

•'Adapted  from  A  History  of  Socialism,  8-12  (1900). 


PROJECTS  OP  SOCIAL  REPORM  753 

in  carrying  out  the  socialist  programme,  as  to  the  relation  of  local 
bodies  to  the  central  government,  and  whether  there  is  to  be  any 
central  government,  or  any  government  at  all  in  the  ordinary  sense 
of  the  word,  as  to  the  influence  of  the  national  idea  in  the  society 
of  the  future,  etc.  They  differ  also  as  to  what  should  be  regarded 
as  an  "equitable"  system  of  distribution. 

Still,  it  should  be  insisted  that  the  basis  of  socialism  is  economic, 
involving  a  fundamental  change  in  the  relation  of  labour  to  land  and 
capital — a  change  which  will  largely  affect  production,  and  will  en- 
tirely revolutionize  the  existing  system  of  distribution.  But,  while 
its  basis  is  economic,  socialism  imphes  and  carries  with  it  a  change  in 
the  political,  ethical,  technical  and  artistic  arrangements  and  insti- 
tutions of  society,  which  would  constitute  a  revolution  greater  than 
has  ever  taken  place  in  human  history,  greater  than  the  transition 
from  the  ancient  to  the  mediaeval  world,  or  from  the  latter  to  the 
existing  order  of  society. 

In  the  first  place,  such  a  change  generally  assumes  as  its  political 
complement  the  most  thoroughly  democratic  organization  of  society. 
Socialism,  in  fact,  claims  to  be  the  economic  complement  of  democ- 
racy, maintaining  that  without  a  fundamental  economic  change  polit- 
ical privilege  has  neither  meaning  nor  value. 

In  the  second  place,  socialism  naturally  goes  with  an  unselfish 
or  altruistic  system  of  ethics.  The  most  characteristic  feature  of 
the  old  societies  was  the  exploitation  of  the  weak  by  the  strong 
under  the  systems  of  slavery,  serfdom,  and  wage-labour.  Under  the 
socialistic  regime  it  is  the  privilege  and  duty  of  the  strong  and 
talented  to  use  their  superior  force  and  richer  endowments  in  the 
service  of  their  fellow-men  without  distinction  of  class,  or  nation,  or 
creed.  In  the  third  place,  socialists  maintain  that,  under  their  sys- 
tem and  no  other,  can  the  highest  excellence  and  beauty  be  re- 
alized in  industrial  production  and  in  art ;  whereas  under  the  present 
system  beauty  and  thoroughness  are  alike  sacrificed  to  cheapness, 
which  is  a  necessity  of  successful  competition. 

Lastly,  the  socialists  refuse  to  admit  that  individual  happiness 
or  freedom  or  character  would  be  sacrificed  under  the  social  ar- 
rangements they  propose.  They  believe  that  under  the  present  svs- 
tem  a  free  and  harmonious  development  of  individual  capacity  and 
happiness  is  possible  only  for  the  privileged  minority,  and  that 
socialism  alone  can  open  up  a  fair  opportunity  for  all.  They  be- 
lieve, in  short,  that  there  is  no  opposition  whatever  between  social- 
ism and  individuality  rightly  understood,  that  these  two  are  com- 
plements the  one  of  the  other,  that  in  socialism  alone  may  every 
individual  have  hope  of  free  development  and  a  full  realization  of 
himself. 


754  CURRENT  ECONOMIC  PROBLEMS 

365.     Property  and  Industry  under  Socialism^^ 

BY  JOHN   SPARGO 

Another  phase  of  our  discussion  concerns  the  industrial  organ- 
ization of  the  Socialist  State,  and  the  place  in  it  of  private  industrial 
enterprise.  Socialism  does  not  involve  the  absolute  monopolization 
of  production  and  distribution,  and  the  total  suppression  of  private 
initiative  and  enterprise  in  these  spheres.  The  economic  organiza- 
tion of  the  Socialist  State  will  undoubtedly  include  production  and 
distribution  by  individuals  and  voluntary  co-operative  groups,  as 
well  as  collective  production  and  distribution  under  the  auspices 
and  control  of  the  State  itself. 

In  all  our  thought  upon  this  question  we  must  bear  in  mind  that 
the  two  principal  economic  arguments  for  socialization  are :  First, 
the  elimination  of  economic  parasitism,  the  exploitation  of  the 
wealth  producers  by  a  class  of  non-producers,  and,  second,  the 
attainment  of  greater  efficiency  through  the  elimination  of  the 
wastefulness  inseparable  from  capitalist  production,  especially  in  its 
competitive  stages. 

The  first  of  these  reasons  constitutes  the  prime  motive  of  the 
Socialist  movement.  The  second  is  the  raison  d'etre  of  the  develop- 
ment of  monopoly.  Every  thoughtful  Socialist  recognizes  that  cap- 
italist production  involves  an  enormous  amount  of  waste,  and  that 
incalculable  gains  would  result  from  the  socialization  of  industry. 

The  greater  part  of  the  production  and  distribution  of  our  pres- 
ent economic  system  is  so  organized  that  the  exploitation  of  the 
workers  engaged  in  it  is  inevitable. 

It  is  a  fundamental  condition  of  Socialism  that  all  such  processes 
and  functions  be  socialized.  In  other  words,  it  is  a  sine  qua  non 
of  Socialism  that  they  be  so  organized  as  to  eliminate  profit-making 
by  investors.  This  does  not  mean  that  they  must  all  be  taken  over 
by  the  supreme  political  organization  which  we  call  the  State.  Nor 
does  it  mean  that  they  must  all  be  socialized  at  once.  A  few  advo- 
cates of  Socialism,  more  zealous  than  intelligent,  seem  to  believe 
that  there  will  be  a  grand  transformation  day  upon  which  all  the 
functions  of  capitalism  will  be  socialized,  but  that  idea  is  not  held  by 
thoughtful  Socialists. 

Great  organizations  like  the  Steel  Trust  represent  the  progress 
already  made  in  the  direction  of  Socialism  through  one  channel. 
Measures  for  the  government  regulation  of  monopolies  now  being 
advocated  by  conservative  non-Socialists  indicate  an  increasing 
readiness  to  make  progress  in  the  same  direction  through  another 

"Adapted  from  Applied  Socialism,  1 16-129.  Copyright  by  B.  W.  Huebsch 
(1912). 


PROJECTS  OF  SOCIAL  REFORM  755 

channel,  the  channel  of  political  organization.  The  process  of  so- 
cialization is  essentially  an  evolutionary  one. 

The  incentive  which  operates  to  bring  about  the  socialization  of 
industries  conducted  for  profit  obtained  from  the  exploitation  of 
the  workers,  obviously  does  not  exist  in  the  case  of  petty,  individu- 
alistic industries  which  do  not  depend  upon  such  exploitation.  The 
market  gardener  who  cultivates  his  own  land  and  sells  his  produce 
without  exploiting  the  labor  of  others,  and  the  individual  craftsman 
who  does  all  his  own  work,  likewise  without  exploiting  the  labor  of 
others,  illustrate  very  clearly  the  distinctive  character  of  enterprises 
which  are  not  characterized  by  class  exploitation.  There  is  a  much 
larger  number  of  these  enterprises,  both  productive  and  distributive, 
than  is  generally  recognized.  It  is  exceedingly  probable  that  a  large 
number  of  them  will  continue  to  exist,  as  individual  enterprises,  in 
the  Socialist  regime. 

It  seems  probable,  then,  that  in  the  Socialist  State  three  forms  of 
economic  enterprise  will  co-exist,  namely  (i)  production  and  dis- 
tribution on  a  large  scale  under  the  auspices  of  the  government — 
national,  state  or  municipal ;  (2)  production  and  distribution  by  co- 
operative associations ;  (3)  production  and  distribution  by  private 
individuals.  To  regulate  properly  the  relation  of  these  three  di- 
visions will  be  the  supreme  task  of  the  democratic  statesmanship  of 
the  future. 

There  are  some  economic  activities  which  from  their  very  nature 
require  a  national  organization  for  their  most  efficient  direction. 
This  is  true  of  railways,  telegraphs,  postal  and  express  services 
among  distributive  agencies,  and  of  mining,  oil  production,  and 
steel  manufacture  among  the  productive  functions.  There  are  other 
economic  activities  which  can  be  most  efficiently  directed  by  the 
smaller  unit,  the  State  or  Province,  and  yet  others  which  can  be 
most  efficiently  conducted  by  the  still  smaller  political  unit,  the  city 
or  commune. 

It  is  impossible  to  make  a  rigid  classification  of  the  economic 
functions  and  decide  to  which  political  unit  each  will  be  entrusted. 
Moreover,  were  such  a  classification  possible  it  would  not  be  of 
much  value.  The  Socialist  State  will  inherit  the  economiic  organ- 
ization of  the  capitalist  system,  and  will  modify  it  in  the  light  of 
its  experience  and  according  to  the  needs  of  its  economic  develof)- 
ment.  The  economic  functions  entrusted  at  first  to  municipalities 
may  later  be  transferred  to  the  larger  units,  the  States  and  prov- 
inces, the  citizens  choosing  a  greater  degree  of  centralization  in  the 
interests  of  efficiency.  On  the  other  hand,  a  certain  amount  of  de- 
centralization may  take  place. 


756  CURRENT  ECONOMIC  PROBLEMS 

The  State,  using  the  term  in  its  most  comprehensive  sense  to 
cover  the  whole  political  organization  of  society,  thus  assumes  the 
functions  now  performed  by  the  capitalist  class  in  the  employment, 
direction  and  superintendence  of  labor.  Naturally,  the  relations  of 
the  State  to  the  individual  worker  will  differ  materially  from  those 
which  now  exist  between  employer  and  employe.  The  position  of 
the  worker  will  be  somewhat  analogous  to  that  of  the  employe  who 
is  also  a  shareholder  in  the  concern  for  which  he  works.  Misunder- 
standings and  conflicts  between  them  are,  therefore,  not  only  pos- 
sible but  highly  probable — perhaps  inevitable. 

Inseparable  from  such  a  system  would  be  the  danger  of  conflict 
between  the  decisions  of  the  workers  engaged  in  important  branches 
of  the  industrial  organization  and  the  interests  of  the  people  as  a 
whole. 

It  is  very  evident  therefore,  that  some  way  must  be  found  to  base 
the  industrial  organization  of  the  Socialist  State  upon  the  dual  basis 
of  the  interests  of  the  whole  citizenry  on  the  one  hand,  and  the 
special  interests  of  the  workers  as  such  upon  the  other  hand.  One 
Socialist  writer  has  gravely  proposed  the  establishment  of  an  elec- 
tive "industrial  parliament  of  two  chambers,  in  one  of  which  repre- 
sentation will  be  according  to  numbers,  while  in  the  other  every 
industry  will  be  represented  irrespective  of  size." 

One  weakness  is  common  to  all  such  ingenious  devices.  They 
are  all  essentially  Utopian.  Based  upon  abstract  principles,  they  fail 
to  take  into  account  the  important  fact  that  society  is  an  organism 
subject  to  the  laws  of  evolution.  Social  institutions  are  never  the 
result  of  the  deliberate  adoption  of  clever  inventions.  It  is  easy 
enough  and  harmless  enough  for  the  believer  in  a  certain  form  of 
social  organization  to  sit  down  and  ask  himself :  "What  institutions 
and  what  methods  will  best  serve  that  fomi  of  social  organization 
in  which  I  believe  ?"  but  we  must  not  be  disappointed  if  quite  other 
institutions  and  methods  are  developed. 

Socialism  is  the  child  of  capitalism.  If  the  Socialist  State  is 
ever  realized  at  all  it  will  be  a  development  of  the  capitalist  State, 
not  a  new  creation.  Many  of  us  believe  that  the  transition  from 
capitalism  will  be  a  tranquil  process,  stretching  over  a  period  of 
many  years ;  that  the  "Social  Revolution"  of  which  we  hear  so  much, 
instead  of  being  a  terrible  upheaval  attended  with  an  enormous 
amount  of  violence  and  suffering,  which  even  the  stoutest  hearts 
must  anticipate  with  anxiety,  is  a  long-drawn  process  of  social  effort 
and  experiment.  The  Social  Revolution  is  not  a  sanguinary  episode 
which  must  attend  the  birth  of  the  new  social  order.  It  is  a  long 
period  of  effort,  experiment  and  adjustment,  and  is  now  taking 
place. 


PROJECTS  OF  SOCIAL  REFORM  757 

The  acceptance  of  this  evolutionary  view  will  save  us  from 
wasting  time  and  energy  in  devising  social  institutions  and  methods 
to  conform  with  abstract  principles.  Instead,  we  shall  seek  the 
beginnings  of  such  institutions  and  methods  as  the  new  epoch  will 
require  within  the  present  order,  together  with  the  beginning  of  the 
new  epoch  itself. 


E.     SOCIALIST  ARGUMENTS  FOR  THE  MASSES 
366.     Capitalism — A  Vampire  System^* 

BY  GEORGE  •£,.  LITTLEFIELD 

1.  Under  capitalism,  labor  of  brain  and  hand — human  life- 
power — is  a  mere  commodity.  The  world's  workers  are  wage-slaves, 
compelled  to  sell  time  portions  of  themselves  in  the  auction  marts 
of  competition  to  master  bidders,  lowering  their  price  in  the  rivalry 
for  jobs — for  the  opportunity  to  live — until  it  is  just  enough  to  equal 
the  bare  cost  of  living  and  reproduction — ^the  iron  law  of  wages. 

2.  Human  labor,  applied  to  natural  resources,  creates  all  value. 

3.  The  unpaid  portion  of  labor  is  surplus  value  or  capital,  with 
which  the  exploiting  capitalists  become  masters  of  land,  buildings, 
machinery,  and  raw  material — all  the  means  of  production  and  dis- 
tribution that  labor  depends  upon  for  existence — therefore  masters 
also  of  the  wage-slaves. 

4.  The  withholding  of  this  surplus  value  from  labor  prevents 
the  exploited  workers  from  buying  or  consuming  but  a  fraction  of 
their  full  product — hence  periodic  over-produ^on  and  consequent 
"hard  times,"  ever  becoming  more  severe  and(^ronic,  until  finally 
the  whole  capitalist  system  must  smother  in  its  own  "prosperity." 

5.  Capitalism  is  a  vampire  system.  While  it  absorbs  the  labor 
and  life  of  the  competitive  wage-slaves,  the  competing  capitalist 
masters,  preying  one  upon  another,  destroy  each  other  until  thus 
we  have  but  a  few  monster  vampires  sucking  the  last  dregs  of  vitality 
from  a  vastly  increased  proletariat,  and  finally  comes  the  crisis — 
the  sin  of  wageism  is  death— the  collapse  of  the  capitalist  system. 
Labor  unions  and  fake  legislation  for  the  strangling  little  capitalists 
(like  the  impotent  railroad-control  law)  may  palliate  and  prolong 
the  present  agony  for  a  brief  time,  but  the  end  is  fatally  doomed  as 
is  the  diseased  person  who  will  not  cut  out  his  life-absorbing  cancer. 
The  huge  modem  plutocratic  parasites,  inflated  with  interest,  rent, 
and  profits,  must  finally  expire  with  the  death  of  what  they  feed 

"From  Capitalism  to  Socialism,  Flashlight  Number  7   (1905). 


758  CURRENT  ECONOMIC  PROBLEMS 

upon — wageism.  So  the  vampire  patricians  of  ancient  Rome  sapped 
the  plebeian  and  slave  basis  of  their  economic  system  and  the  Empire 
fell  in  476, 

6.  No  system  of  civilization  can  advance  or  live  when  a  feasting, 
reveling  class  drinks  from  the  toilers'  veins  while  riding  on  their 
backs.  The  knell  of  its  own  death  is  now  being  rung  by  capitalism 
which  hypocritizes  religion ;  perverts  morality ;  makes  the  law  unjust ; 
prostitutes  education;  promotes  war;  corrupts  politics;  practices 
robbery,  swindling,  and  gambling  as  a  business ;  betrays  friendship ; 
sends  love  out  street- walking  and  makes  marriage  mercenary;  calls 
attic  lodgings,  slum  cellars,  corporation  shacks,  and  hobo  hovels 
"homes" ;  offers  little  children  to  the  moloch  of  commercialism,  and 
in  the  mad  scramble  for  its  dope  incentive — dollars — materializes 
the  rich,  vulgarizes  the  well-to-do,  and  brutalizes  the  poor.  Such 
is  the  result  of  the  economic  determinism  of  capitalism. 


367.     "My  Papa  Is  a  Socialist"** 

BY  HARVEY  P.  MOVER 

My  papa  is  a  Socialist,  my  mamma,  too,  and  I, 
And  if  you'll  wait  a  minute  now,  I'll  tell  the  reason  why; 
I'm  sure  that  when  you  understand,  you  certainly  will  see, 
You'd  better  all  be  Socialists,  and  vote  with  pa  and  me. 

You  see  this  earth  is  long  and  wide,  good  things  above,  below, 
And  there  are  lots  of  people,  too,  who  want  to  make  things  go; 
Besides,  we're  all  just  quite  alike,  need  food  and  clothes  and  rest, 
And  if  we  all  were  Socialists,  we  all  would  share  earth's  best. 

But  now  John  D.  owns  all  the  oil,  most  banks,  and  railroads,  too, 

And  then  a  few  own  all  the  land,  so  what  can  poor  folks  do 

But  tramp  and  starve  and  beg  for  jobs,  and  work  and  work  and 

work? 
And  all  the  wealth  we  make,  but  scraps,  we  give  the  wealthy  shirk. 

Now  isn't  every  papa,  most,  the  very  biggest  goose, 

To  give  away  most  all  he  makes  to  men  who  don't  produce? 

So  that  a  few  rich  families  may  all  be  living  fine. 

While  all  we  weary  working  folks  must  suffer,  want,  and  pine. 

**From  Songs  of  Socialism,  p.  45.    Copyright  by  the  author.    Published 
by  the  Co-operative  Printing  Co.  (1906). 


PROJECTS  OF  SOCIAL  REFORM  759 

And  then  they  do  such  foolish  things,  I  often  wonder  why 

They  "strike"  and  lose  their  jobs,  and  let  us  freeze  and  starve  and 

cry; 
When,  if  all  joined  the  Socialists,  in  four  years  more  or  five 
We'd  all  be  wealthy  partners  in  the  world's  great  working  hive. 

For  if  they'd  stop  to  think,  they'd  see  how  easy  'twas  to  make, 
Together,  all  we'd  want  to  have,  and  what  we'd  make,  we'd  take ; 
So  that  the  children,  all  alike,  our  papas,  mammas,  too. 
Would  all  enjoy  earth's  happiness,  as  Socialists  want  all  to. 

So  papa  is  a  Socialist,  mamma,  we  children,  too; 

We  want  to  make  all  children  rich  and  happy,  too,  don't  you? 

Good  food  and  homes,  nice  shoes  and  clothes,  we  children  want, 

don't  you  ? 
So  all  of  us  are  Socialists ;  please,  won't  you  be  one  too? 


368.     The  Capitalist's  Ten  Commandments^' 

BY  W.  WILLIS  HARRIS 

I.  I  am  Capital,  thy  Master,  that  brought  thee  out  of  the  Land 
of  Liberty  into  a  State  of  Slavery.  Thou  shalt  not  become  thine 
own  Master  nor  have  any  other  Master  but  me. 

IL  Thou  shalt  not  create  any  wealth,  nor  any  likeness  of  any 
wealth  that  is  in  Heaven  above,  or  that  is  in  Earth  beneath,  or  that  is 
in  the  waters  under  the  Earth,  unless  I  can  make  a  profit  out  of  it. 
Thou  shalt  bow  thyself  down  under  my  oppression  and  serve  me, 
for  I,  Capital,  am  a  jealous  Master  and  visit  the  poverty  of  the 
fathers  upon  the  children  unto  the  third  and  fourth  generations  of 
those  that  create  wealth  for  me,  and  show  mercy  unto  the  thousands 
of  sycophants  that  love  me  and  help  me  to  share  the  spoils  of  Labor. 

in.  Thou  shalt  not  produce  wealth  for  thyself,  for  I,  Capital, 
will  not  hold  him  guiltless  that  attempts  to  do  so  in  vain. 

IV.  Keep  the  Labor  Days,  and  sanctify  them ;  as  I,  Capital  have 
commanded  thee,  lest  I  throw  thee  out  of  employment.  Four-and- 
a-half  days  thou  shalt  work  for  me,  and  one-and-a-half  for  thyself. 
But  the  seventh  day  is  a  rest  day  for  Labor  to  recoup  his  strength. 
In  it  thou  shalt  not  do  any  work,  thou,  nor  thy  son,  nor  thy  daughter, 
nor  thy  wife,  unless  they  be  menial  servants  or  minister  to  my 
comforts.    And  remember  that  thou  art  my  slave,  therefore  do  not 

"Adapted  from  Progressive  Thought,  II,  No.  5,  pp.  13-14  (1898). 


76o  CURRENT  ECONOMIC  PROBLEMS 

attempt  to  enjoy  thyself  lest  thou  over-exert  thyself  and  be  unable 
to  produce  a  profit  for  me  next  week. 

V.  Honor  Landlordism  and  Usury,  my  co-partners,  as  I,  Capi- 
tal, have  commanded  thee,  that  thy  days  may  be  short  in  the  Land 
in  which  thou  art  born. 

VL     Thou  shalt  commit  murder  for  my  sake  only. 

VU.  Thou  shalt  give  thy  daughters  in  prostitution  and  thy 
wife  in  adultery  to  me. 

Vin.  Thou  shalt  not  steal,  that  being  the  right  divine  of 
Capital. 

IX.  Thou  shalt  bear  false  witness  against  thy  neighbor — if  he 
be  a  Socialist. 

X.  Thou  shalt  not  desire  the  full  products  of  thy  labor,  neither 
shalt  thou  covet  the  Land  of  thy  birth,  nor  the  stored-up  wealth  of 
past  generations,  nor  the  idleness,  luxury,  and  privileges  of  the 
wealthy,  nor  anything  that  is  in  possession  of  the  capitalist. 

369.     A  Confession  of  Faith^^ 

I  believe  in  Capital,  the  ruler  of  body  and  mind. 

I  believe  in  Profit,  His  Right-hand  Bower,  and  in  Credit,  His 
Left-hand  Bower,  both  of  which  proceed  from  and  are  one  with 
Him. 

I  believe  in  Gold  and  Silver,  which  melted  in  the  crucible,  cut 
up  into  bullion,  and  stamped  in  the  mint,  make  their  appearance  in 
the  world  as  coin,  but,  after  having  rolled  over  the  earth,  and  being 
found  too  heavy,  descends  into  the  vaults  of  the  Banks,  and  re- 
ascends  in  the  shape  of  Paper  Money. 

I  believe  in  Dividends,  in  5  per  cents,  4  per  cents  and  3  per  cents, 
and  also  in  smaller  per  cents,  that  are  shaved  from  notes. 

I  believe  in  National  Debts,  which  secure  Capital  against  the 
risks  of  trade,  industry  and  the  fluctuations  of  the  money  market. 

I  believe  in  Private  Property,  the  fruit  of  the  labor  of  others ; 
and  I  also  believe  in  its  existence  from  and  for  all  time. 

I  believe  in  the  necessity  of  Misery — the  furnisher  of  wage- 
slaves,  and  the  mother  of  surplus  labor. 

I  believe  in  the  eternity  of  the  Wage  System,  which  setteth  the 
workingman  free  from  all  the  cares  of  holding  property. 

I  believe  in  the  extension  of  the  hours  of  work,  and  in  the  Reduc- 
tion of  wages ;  and  I  also  believe  in  the  adulteration  of  goods. 

I  believe  in  the  holy  dogma:  "Buy  Cheap,  Sell  Dear,"  and 
thereby  in  the  fundamental  principles  of  our  sacrosanct  Church,  as 
revealed  by  professional  Political  Economy.    Amen! 

*" Adapted  from  Progressive  Thought,  II,  No.  5,  p.  14  (1898). 


PROJECTS  OF  SOCIAL  REFORM  761 

F.     SOCIALIST  PROGRAMS 
370.     The  National  Platform  of  the  Socialist  Party*' 

The  representatives  of  the  Socialist  Party  in  National  Convention 
at  Indianapolis  declare  that  the  capitalist  system  has  outgrown  its 
historical  function,  and  has  become  utterly  incapable  of  meeting  the 
problems  now  confronting  society.  We  denounce  this  outgrown 
system  as  incompetent  and  corrupt  and  the  source  of  unspeakable 
misery  and  suffering  to  the  whole  working  class. 

Under  this  system  the  industrial  equipment  of  the  nation  has 
passed  into  the  absolute  control  of  a  plutocracy  which  exacts  an 
annual  tribute  of  millions  of  dollars  from  the  producers.  Unafraid 
of  any  organized  resistance,  it  stretches  out  its  greedy  hands  over 
the  still  undeveloped  resources  of  the  nation— the  land,  the  mines, 
the  forests  and  the  water-powers  of  every  State  in  the  Union. 

In  spite  of  the  multiplication  of  labor-saving  machines  and  im- 
proved methods  in  industry  which  cheapen  the  cost  of  production, 
the  share  of  the  producers  grows  ever  less,  and  the  prices  of  all 
the  necessities  of  life  steadily  increase.  The  boasted  prosperity  of 
this  nation  is  for  the  owning  class  alone.  To  the  rest  it  means 
only  greater  hardship  and  misery.  The  high  cost  of  living  is  felt 
in  every  home.  Millions  of  wage-workers  have  seen  the  purchasing 
power  of  their  wages  decrease  until  life  has  become  a  desperate 
battle  for  mere  existence. 

Multitudes  of  unemployed  walk  the  streets  of  our  cities  or 
trudge  from  State  to  State  awaiting  the  will  of  the  masters  to  move 
the  wheels  of  industry. 

The  farmers  in  every  State  are  plundered  by  the  increasing 
prices  exacted  for  tools  and  machinery  and  by  extortionate  rents, 
freight  rates,  and  storage  charges. 

Capitalist  concentration  is  mercilessly  crushing  the  class  of  small 
business  men  and  driving  its  members  into  the  ranks  of  propertiless 
wage-workers.  The  overwhelming  majority  of  the  people  of  Am- 
erica are  being  forced  under  a  yoke  of  bondage  by  this  soulless  in- 
dustrial despotism. 

It  is  this  capitalist  system  that  is  responsible  for  the  increasing 
burden  of  armaments,  the  poverty,  slums,  child  labor,  most  of  the  in- 
sanity, crime,  and  prostitution,  and  much  of  the  disease  that  afflicts 
mankind. 

Under  this  system  the  working  class  is  exposed  to  poisonous  con- 
ditions, to  frightful  and  needless  perils  to  life  and  limb,  is  w:alled 
around  with  court  decisions,  injunctions  and  unjust  laws,  and  is 

"Adopted  at  Indianapolis,  May  16,  1912. 


762  CURRENT  ECONOMIC  PROBLEMS 

preyed  upon  incessantly  for  the  benefit  of  the  controUing  oligarchy 
of  wealth.  Under  it  also,  the  children  of  the  working  class  are 
doomed  to  ignorance,  drudging  toil  and  darkened  lives. 

In  the  face  of  these  evils,  so  manifest  that  all  thoughtful  observ- 
ers are  appalled  at  them,  the  legislative  representatives  of  the  Re- 
publican, Democratic,  and  all  reform  parties  remain  the  faithful 
servants  of  the  oppressors.  Measures  designed  to  secure  to  the  wage 
earners  of  this  nation  as  humane  and  just  treatment  as  is  already 
enjoyed  by  the  wage-earners  of  all  other  civilized  nations  have  been 
smothered  in  committee  without  debate,  and  laws  ostensibly  designed 
to  bring  relief  to  the  farmers  and  general  consumers  are  juggled 
and  transformed  into  instruments  for  the  exaction  of  further  tribute. 
The  growing  unrest  under  oppression  has  driven  these  two  old 
parties  to  the  enactment  of  a  variety  of  regulative  measures,  none 
of  which  has  limited  in  any  appreciable  degree  the  power  of  the 
plutocracy,  and  some  of  which  have  been  perverted  into  means  for 
increasing  that  power.  Anti-trust  laws,  railroad  restrictions  and 
regulations,  with  the  prosecutions,  indictments  and  investigations 
based  upon  such  legislation,  have  proved  to  be  utterly  futile  and 
ridiculous.  Nor  has  this  plutocracy  been  seriously  restrained  or 
even  threatened  by  any  Republican  or  Democratic  executive.  It  has 
continued  to  grow  in  power  and  insolence  alike  under  the  admin- 
istrations of  Cleveland,  McKinley,  Roosevelt  and  Taft. 

In  addition  to  this  legislative  juggling  and  this  executive  con- 
nivance, the  courts  of  America  have  sanctioned  and  strengthened 
the  hold  of  this  plutocracy  as  the  Dred  Scott  and  other  decisions 
strengthened  the  slave  power  before  the  Civil  War. 

We  declare,  therefore,  that  the  longer  suflFerance  of  these  con- 
ditions is  impossible,  and  we  purpose  to  end  them  all.  We  declare 
them  to  be  the  product  of  the  present  system  in  which  industry 
is  carried  on  for  private  greed,  instead  of  for  the  welfare  of  society. 
We  declare,  furthermore,  that  for  these  evils  there  will  be  and  can  be 
no  remedy  and  no  substantial  relief  except  through  Socialism,  under 
which  industry  will  be  carried  on  for  the  common  good  and  ever}' 
worker  receive  the  full  social  value  of  the  wealth  he  creates. 

Society  is  divided  into  warring  groups  and  classes,  based  upon 
material  interest.  Fundamentally,  this  struggle  is  a  conflict  between 
the  two  main  classes,  one  of  which,  the  capitalist  class,  owns  the 
means  of  production,  and  the  other,  the  working  class,  must  use 
these  means  of  production  on  terms  dictated  by  the  owners. 

The  capitalist  class,  though  few  in  numbers,  absolutely  controls 
the  Government — legislative,  executive  and  judicial.  This  class 
owns  the  machinery  of  gathering  and  disseminating  news  through 


PROJECTS  OF  SOCIAL  REFORM  763 

its  organized  press.  It  subsidizes  seats  of  learning — the  colleges 
and  schools — and  even  religious  and  moral  agencies.  It  has  also 
the  added  prestige  which  established  customs  give  to  any  order  of 
society,  right  or  wrong. 

The  working  class,  which  includes  all  those  who  are  forced  to 
work  for  a  living,  whether  by  hand  or  by  brain,  in  shop,  mine  or 
on  the  soil,  vastly  outnumbers  the  capitalist  class.  Lacking  effec- 
tive organization  and  class  solidarity,  this  class  is  unable  to  enforce 
its  will.  Given  such  class  solidarity  and  effective  organization,  the 
workers  will  have  the  power  to  make  all  laws  and  control  all  in- 
dustry in  their  own  interest 

All  political  parties  are  the  expression  of  economic  class  inter- 
ests. All  other  parties  than  the  Socialist  Party  represent  one  or  an- 
other group  of  the  ruling  capitalist  class.  Their  political  conflicts 
reflect  merely  superficial  rivalries  between  competing  capitalist 
groups.  However  they  result,  these  conflicts  have  no  issue  of  real 
value  to  the  workers.  Whether  the  Democrats  or  Republicans  win 
politically,  it  is  the  capitalist  class  that  is  victorious  economically. 

The  Socialist  Party  is  the  political  expression  of  the  economic 
interests  of  the  workers.  Its  defeats  have  been  their  defeats,  and 
its  victories  their  victories.  It  is  a  party  founded  on  the  science  and 
laws  of  social  development  It  proposes  that,  since  all  social  neces- 
sities today  are  socially  produced,  the  means  of  their  production 
shall  be  socially  owned  and  democratically  controlled. 

In  the  face  of  the  economic  and  political  aggressions  of  the  cap- 
italist class  the  only  reliance  left  the  w-orkers  is  that  of  their  eco- 
nomic organizations  and  their  political  power.  By  the  intelligent 
and  class-conscious  use  of  these  they  may  resist  successfully  the 
capitalist  class,  break  the  fetters  of  wage  slavery,  and  fit  themselves 
for  the  future  society,  which  is  to  displace  the  capitalist  system.  The 
Socialist  Party  appreciates  the  full  significance  of  class  organization 
and  urges  the  wage  earners,  the  working  farmers  and  all  other 
useful  workers  everywhere  to  organize  for  economic  and  political 
action,  and  we  pledge  ourselves  to  support  the  toilers  of  the  fields 
as  well  as  those  in  the  shops,  factories  and  mines  of  the  nation  in 
their  struggle  for  economic  justice. 

In  the  defeat  or  victory  of  the  working  class  party  in  this  new 
struggle  for  freedom  lies  the  defeat  or  triumph  of  the  common 
people  of  all  economic  groups,  as  well  as  the  failure  or  the  triumph 
of  popular  government.  Thus  the  Socialist  Party  is  the  party  of  the 
present  day  revolution,  which  marics  the  transition  from  economic 
individualism  to  Socialism,  from  wage  slavery  to  free  co-operation, 
from  capitalist  oligarchy  to  industrial  democracy. 


764  CURRENT  ECONOMIC  PROBLEMS 

As  measures  calculated  to  strengthen  the  working  class  in  its 
fight  for  the  realization  of  its  ultimate  aim,  the  Co-operative  Com- 
monwealth, and  to  increase  the  power  of  resistance  against  cap- 
italist oppression,  we  advocate  and  pledge  ourselves  and  our  elected 
ofticers  to  the  following  program: 

COIvLECTlVE  OWNERSHIP 

I.  The  collective  ownership  and  democratic  management  of 
railroads,  wire  and  wireless  telegraphs  and  telephones,  express  ser- 
vices, steamboat  lines  and  all  other  social  means  of  transportation 
and  communication  and  of  all  large  scale  industries. 

2.  The  immediate  acquirement  by  the  municipalities,  the  vStates 
or  the  federal  government  of  all  grain  elevators,  stockyards,  storage 
warehouses  and  other  distributing  agencies,  in  order  to  reduce  the 
present  extortionate  cost  of  living. 

3.  The  extension  of  the  public  domain  to  include  mines,  quar- 
ries, oil  wells,  forests  and  water  power. 

4.  The  further  conservation  and  development  of  natural  re- 
sources for  the  use  and  benefit  of  all  the  people : 

(a)  By  scientific  forestration  and  timber  protection. 

(b)  By  the  reclamation  of  arid  and  swamp  tracts. 

(c)  By  the  storage  of  flood  waters  and  the  utilization  of  water 
power. 

(d)  By  the  stoppage  of  the  present  extravagant  waste  of  the 
soil  and  of  the  products  of  mines  and  oil  wells. 

(e)  By  the  development  of  highway  and  waterway  systems. 

5.  The  collective  ownership  of  land  wherever  practicable,  and 
in  cases  where  such  ownership  is  impracticable,  the  appropriation 
by  taxation  of  the  annual  rental  value  of  all  land  held  for  specu- 
lation. 

6.  The  collective  ownership  and  democratic  management  of  the 
banking  and  currency  system. 

UNEMPLOYMENT 

The  immediate  government  relief  of  the  unemployed  by  the  ex- 
tension of  all  useful  public  works.  All  persons  employed  on  such 
works  to  be  engaged  directly  by  the  government  under  a  workday 
of  not  more  than  eight  hours  and  not  less  than  the  prevailing  union 
wages.  The  government  also  to  establish  employment  bureaus;  to 
lend  money  to  States  and  municipalities  without  interest  for  the 
purpose  of  carrying  on  public  works,  and  to  take  such  other  meas- 
ures within  its  power  as  will  lessen  the  widespread  misery  of  the 
workers  caused  by  the  misrule  of  the  capitalistclass. 


PROJECTS  OP  SOCIAL  REFORM  765 

INDUSTRIAL  DEMANDS 

The  conservation  of  human  resources,  particularly  of  the  lives 
and  well-being  of  the  workers  and  their  families: 

1.  By  shortening  the  workday  in  keeping  with  the  increased 
productiveness  of  machinery. 

2.  By  securing  to  every  worker  a  rest  period  of  not  less  than  a 
day  and  a  half  in  each  week. 

3.  By  securing  a  more  effective  inspection  of  workshops,  fac- 
tories and  mines. 

4.  By  forbidding  the  employment  of  children  under  16  years 
of  age. 

5.  By  the  co-operative  organization  of  industries  in  federal 
penitentiaries  and  workshops  for  the  benefit  of  convicts  and  their 
dependents. 

6.  By  forbidding  the  interstate  transportation  of  the  products 
of  child-labor,  of  convict  labor  and  of  all  uninspected  factories  and 
mines. 

7.  By  abolishing  the  profit  system  in  government  work,  and 
substituting  either  the  direct  hire  of  labor  or  the  awarding  of  con- 
tracts to  co-operative  groups  of  workers. 

8.  By  establishing  minimum  wage  scales. 

9.  By  abolishing  official  charity  and  substituting  a  non-con- 
tributory system  of  old  age  pensions,  a  general  system  of  insurance 
by  the  State  of  all  its  members  against  unemployment  and  invalid- 
ism and  a  system  of  compulsory  insurance  by  employers  of  their 
workers,  without  cost  to  the  latter,  against  industrial  disease,  acci- 
dents and  death. 

POLITICAL  DEMANDS 

The  absolute  freedom  of  press,  speech,  and  assemblage. 

The  adoption  of  a  gradual  income  tax,  the  increase  of  the  rates 
of  the  present  corporation  tax  and  the  extension  of  inheritance  taxes, 
graduated  in  proportion  to  the  value  of  the  estate  and  to  nearness 
of  kin — the  proceeds  of  these  taxes  to  be  employed  in  the  social- 
ization of  industry. 

The  abolition  of  the  monopoly  ownership  of  patents  and  the 
substitution  of  collective  o\\Tiership,  with  direct  rewards  to  inventors 
by  premiums  or  royalties. 

Unrestricted  and  equal  suffrage  for  men  and  women. 

The  adoption  of  the  initiative,  referendum  and  recall  and  of 
proportional  representation,  nationally  as  well  as  locally. 

The  abolition  of  the  Senate  and  the  veto  power  of  the  President. 


766  CURRENT  ECONOMIC  PROBLEMS 

The  election  of  the  President  and  the  Vice-President  by  direct 
vote  of  the  people. 

The  abolition  of  the  power  usurped  by  the  Supreme  Court  of  the 
United  States  to  pass  upon  the  constitutionality  of  the  legislation 
enacted  by  Congress.  National  laws  to  be  repealed  only  by  act  of 
Congress  or  by  the  voters  in  a  majority  of  the  States. 

The  granting  of  the  right  of  suffrage  in  the  District  of  Colum- 
bia with  representation  in  Congress  and  a  democratic  form  of 
municipal  government  for  purely  local  affairs. 

The  extension  of  democratic  government  to  all  United  States 
territory. 

The  enactment  of  further  measures  for  general  education  and 
particularly  for  vocational  education  in  useful  pursuits.  The  Bureau 
of  Education  to  be  made  a  department. 

The  enactment  of  further  measures  for  the  conservation  of 
health.  The  creation  of  an  independent  Bureau  of  Health  with  such 
restrictions  as  will  secure  full  liberty  for  all  schools  of  practice. 

The  separation  of  the  present  Bureau  of  Labor  from  the  Depart- 
ment of  Commerce  and  Labor  and  its  elevation  to  the  rank  of  a  de- 
partment. 

Abolition  of  the  Federal  District  Courts  and  the  United  States 
Circuit  Courts  of  Appeals.  State  courts  to  have  jurisdiction  in  all 
cases  arising  between  citizens  of  the  several  States  and  foreign 
corporations.    The  election  of  all  judges  for  short  terms. 

The  immediate  curbing  of  the  power  of  the  courts  to  issue  in- 
junctions. 

The  free  administration  of  justice. 

The  calling  of  a  convention  for  the  revision  of  the  Constitution 
of  the  United  States. 

Such  measures  of  relief  as  we  may  be  able  to  force  from  cap- 
italism are  but  a  preparation  of  the  workers  to  seize  the  whole  pow- 
ers of  government  in  order  that  they  may  thereby  lay  hold  of  the 
whole  system  of  socialized  industry  and  thus  come  to  their  rightful 
inheritance. 

371.    Municipal  and  State  Program^' 

I.      I,ABOR  MEASURES 

1.  Eight-hour  day,  trade-union  wages  and  conditions  in  all 
public  employment  and  on  all  contract  work  done  for  the  city. 

2.  Old-age  pension,  accident  insurance,  and  sick  benefits  to  be 
provided  for  all  public  employees. 

**Drawn  up  by  a  committee  appointed  by  the  National  Convention  of  the 
Socialist  Party,  May,  1912.    See  Socialist  Campaign  Book,  310-31 1  (1912). 


PROJECTS  OF  SOCIAL  REFORM  767 

3.  Special  laws  for  the  protection  of  both  men,  women,  and 
children  in  mercantile,  domestic,  and  industrial  pursuits. 

4.  Abolition  of  child  labor. 

5.  Police  not  to  be  used  to  break  strikes. 

6.  Rigid  inspection  of  factories  by  local  authorities  for  the 
improvement  of  sanitary  conditions,  lighting,  heating,  ventilating, 
and  the  like.  Safety  appliances  required  in  all  cases  to  protect  the 
worker  against  dangerous  machinery. 

7.  Free  employment  bureaus  to  be  established  in  the  cities  to 
work  in  co-operation  with  the  state  bureaus.  Abolition  of  contract 
system  and  direct  employment  by  the  city  on  all  public  work. 

8.  Free  legal  advice. 

9.  The  provision  of  work  for  the  unemployed  by  the  erection 
of  model  dwellings  for  workingmen;  the  paving  and  improvement 
of  streets  and  alleys,  and  the  extension  and  improvement  of  parks 
and  playgrounds. 

II.      HOME  RULE 

Home  rule  for  cities;  including  the  right  of  the  city  to  own 

and  operate  any  and  all  public  utilities;  to  engage  in  commercial 
enterprises  of  any  and  all  kinds ;  the  right  of  excess  condemnation, 
both  within  and  outside  the  city,  and  the  right  of  two  or  more  cities 
to  co-operate  in  the  ownership  and  management  of  public  utilities ; 
the  city  to  have  the  right  of  issuing  bonds  for  these  purposes  up  to 
50  per  cent  of  the  assessed  valuation,  or  the  right  to  issue  mortgage 
certificates  against  the  property  acquired,  said  certificates  not  to 
count  against  the  bonded  indebtedness  of  the  city. 

ni.      MUNICIPAL  OWNERSHIP 

The  city  to  acquire  as  rapidly  as  possible,  own  and  operate  its 
public  utilities,  especially  street-car  systems,  light,  heat,  and  power 
plants,  docks,  wharves,  etc. 

Among  the  things  which  may  be  owned  and  operated  by  the 
city  to  advantage  are  slaughter  houses,  bakeries,  milk  depots,  coal 
and  woods  yards,  ice  plants,  undertaking  establishments,  and  crema- 
tories. 

On  all  public  works,  eight-hour  day,  trade-union  wages,  and  pro- 
gressive improvements  in  the  condition  of  labor  to  be  established  and 
maintained. 

IV.      CITY  PLATTING,  PLANNING  AND  HOUSING 

I.  The  introduction  of  scientific  city  planning  to  provide  for  the 
development  of  cities  along  the  most  sanitary,  economic,  and  attrac- 
tive lines. 


768  CURRENT  ECONOMIC  PROBLEMS 

2.  The  city  to  secure  the  ownership  of  land,  to  plat  the  same  so 
as  to  provide  for  plenty  of  open  space,  and  to  erect  model  dwellings 
thereon  to  be  rented  by  the  municipality  at  cost. 

3.  Transportation  facilities  to  be  maintained  with  special  refer- 
ence to  the  prevention  of  overcrowding  in  unsanitary  tenements  and 
the  creation  of  slum  districts. 

V.      PUBLIC    HEALTH 

1.  Inspection  of  food. 

2.  Sanitary  inspection. 

3.  Extension  of  free  hospital  and  medical  treatment. 

4.  Child-welfare  department,  to  combat  death  rate  prevailing, 
especially  in  working-class  sections. 

5.  Special  attention  to  eradication  of  tuberculosis  and  other 
contagious  diseases. 

6.  System  of  street  toilets  and  public-comfort  stations. 

7.  Adequate  system  of  public  baths,  parks,  playgrounds,  and 
gymnasiums. 

VI.      PUBLIC  EDUCATION 

1.  Adequate  number  of  teachers,  so  that  classes  may  not  be  too 
large. 

2.  Retirement  fund  for  teachers. 

3.  Adequate  school  buildings  to  be  provided  and  maintained. 

4.  Ample  playgrounds  with  instructors  in  charge, 

5.  Free  textbooks  and  equipment. 

6.  Penny  lunches,  and,  where  necessary,  free  meals  and  cloth- 
ing. 

7.  Medical  inspection,  including  free  service  in  the  care  of 
eyes,  ears,  throat,  teeth,  and  general  health  where  necessary  to  insure 
mental  efficiency  in  the  educational  work,  and  special  inspection  to 
protect  the  schools  from  contagion. 

8.  Baths  and  gymnasiums  in  each  school. 

9.  Establishment  of  vacation  schools  and  adequate  night  schools 
for  adults. 

10.  All  school  buildings  to  be  open  or  available  for  the  citizens 
of  their  respective  communities,  at  any  and  all  times,  and  for  any 
purpose  desired  by  the  citizens,  so  long  as  such  use  does  not  interfere 
with  the  regular  school  work.  All  schools  to  serve  as  centers  for 
social,  civic,  and  recreational  purposes. 

VII.      THE  LIQUOR  TRAFFIC  AND  VICE 

1.  Socialization  of  the  liquor  traffic;  the  city  to  offer  as  sub- 
stitute for  the  social  features  of  the  saloon,  opportunities  for  recrea- 
tion and  amusement,  under  wholesome  conditions. 

2,  Abolition  of  the 'restricted  vice  districts. 


PROJECTS  OF  SOCIAL  REFORM  769 

VIII.      MUNICIPAL   MARKETS 

Municipal  markets  to  be  established  where  it  is  found  that  by 
this  means  a  reduction  may  be  secured  in  the  cost  of  the  necessities 
of  life. 

G.    THE  CASE  AGAINST  SOCIALISM 
373.    The  Transition  to  the  Socialist  State" 

BY  O.  D.  SKELTON 

The  first  problem  that  faces  the  socialist — how  catch  the  hare — 
is  primarily  a  question  of  tactics,  but  its  solution  largely  determines 
the  character  and  extent  of  the  difficulties  facing  the  collectivist 
commonwealth  at  the  outset.  Is  the  capitalist  to  be  expropriated 
without  indemnity,  or  to  be  offered  compensation?  The  earlier  hot- 
blooded  demand  for  the  expropriation  of  the  robber  rich  without 
one  jot  of  payment  is  now  heard  more  rarely  in  the  socialist  camp. 
This  attitude  was  consistent  with  the  catastrophic  view  of  social 
evolution,  the  view  that  the  revolution  would  be  "an  affair  of  twen- 
ty-four lively  hours,  with  Individualism  in  full  swing  on  Monday 
morning,  a  tidal  wave  of  the  insurgent  proletariat  on  Monday  after- 
noon, and  Socialism  in  complete  working  order  on  Tuesday."  But 
in  these  post-Darwinian  days  this  naive  expectation  is  untenable. 
With  the  growing  admission  that  the  new  order  must  be  established 
by  degrees,  it  is  seen  that  it  would  be  impossible  to  expropriate 
certain  capitalists  and  leave  the  rest  in  undisturbed  possession. 
Further,  forcible  expropriation  without  indemnity  would  be  impos- 
sible; even  were  the  great  majority  of  the  manufacturing  proletariat 
won  over  to  the  policy,  they  could  scarcely  hope  to  overcome  the 
determined  resistance  of  the  millions  of  farmers  and  the  urban 
middle  class. 

If  the  other  horn  of  the  dilemma  is  then  unanimously  chosen, 
and  the  capitalists  bought,  out  at  one  hundred  cents  on  the  dollar, 
how  is  the  condition  of  the  poorer  classes  one  jot  improved?  There 
will  be  heaped  up  an  immense  debt,  a  perpetual  mortgage  on  the 
collective  industry ;  rent  and  interest  will  still  remain  a  first  charge, 
still  extract  "surplus  labor"  from  the  workers.  Even  if  collectivist 
management  were  to  prove  every  whit  as  efficient  as  capitalistic, 
the  surplus  for  division  among  the  workers  would  not  be  increased 
beyond  that  available  to-day.  Indeed,  it  w^ould  be  diminished.  To- 
day a  great  part  of  the  revenue  drawn  in  the  shape  of  rent  and  in- 
terest is  at  once  recapitalized,  and  makes  possible  the  maintenance 

"•Adapted  from  Socialism:  A  Critical  Analysis,  182-184.  Copyright  by 
Hart.  Schaffner  &  Marx   (1911). 


770  CURRENT  ECONOMIC  PROBLEMS 

and  extension  of  industry.  A  socialist  regime  could  not  permit  the 
paid-off  capitalists  to  utilize  their  dividends  in  this  manner,  increas- 
ing their  grip  on  industry;  they  would  be  compelled  to  spend  it  in 
an  orgy  of  consumption.  All  provision  for  capital  extension  would 
therefore  have  to  come  out  of  what  was  left  of  the  national  divi- 
dend.   The  last  state  would  be  worse  than  the  first. 

Recognizing  this,  various  socialists  have  proposed,  once  the  cap- 
ital has  been  appropriated,  to  put  on  the  screws  by  imposing  in- 
come, property,  and  inheritance  taxes  which  will  eventually  wipe 
out  all  obligations  against  the  state.  In  other  words,  they  would 
imitate  the  humanitarian  youngster  who  thoughtfully  cuts  off  the 
cat's  tail  an  inch  at  a  time,  to  save  it  pain.  Doubtless  there  are, 
within  the  existing  order,  great  possibilities  of  extension  of  such 
taxes  for  the  furtherance  of  social  reform.  Possibly  our  withers 
would  be  unwrung  if  the  socialistic  state  confiscated  the  multimil- 
lionaire's top  hundred  million  by  a  progressive  tax.  But  the  for- 
tunes of  the  multimillionaires,  spectacular  as  they  are  and  politically 
dangerous  as  they  are,  form  but  a  small  proportion  of  the  total 
wealth.  So  soon  as  the  tax  came  to  threaten  the  confiscation  of 
the  small  income  as  well  as  the  great,  the  matter  would  again  be- 
come one  of  relative  physical  force. 

373.     Socialism  and  Inequality'" 

BY  N.  G.  PIERSON 

Under  State  socialism,  pure  and  simple,  the  Government  of  the 
cotintry  would  assume  the  ownership  of  the  instruments  of  pro- 
duction. We  take  it  that  this  end  might  be  achieved  in  the  follow- 
ing manner.  Just  as  at  the  present  it  already  owns  the  postal  sys- 
tem, just  as  in  certain  countries  it  already  owns  and  works  the 
railways,  manufactures  cigars  and  matches,  so  it  might  successively 
assume  the  ownership,  and  undertake  the  working  of  all  factories 
and  workshops,  .all  means  of  transport,  farms,  fisheries,  warehouses, 
and  shops.  In  order  to  be  able  to  form  by  degrees  a  staff  of  prop- 
erly qualified  officials,  the  State  would  have  to  be  careful  not  to 
proceed  with  undue  haste.  Beginning  with  those  branches  of  indus- 
try, in  which  no  great  experience  or  intelligence  was  required,  it 
would  have  to  proceed  step  by  step  in  extending  the  sphere  of  its 
operations,  and  would  have  to  be  content  if,  at  the  end  of  sixty  or 
a  hundred  years,  it  had  succeeded  in  bringing  the  whole  of  produc- 
tion within  that  sphere.     From  this,  however,  it  follows  that  the 

"Adapted  from  Principles  of  Economics,  II,  88-91.  Copyright  by  Mac- 
mJUan  &  Co.  (1902). 


PROJECTS  OF  SOCIAL  REFORM  771 

transfer  would  necessarily  have  to  be  effected  on  terms  of  adequate 
compensation  to  the  present  owners.  We  are  now  leaving  questions 
of  equity  entirely  out  of  consideration,  and  regarding  only  the  eco- 
nomic aspects  of  the  questioru  During  the  time  when  the  State  was 
engaged  in  appropriating  the  instruments  of  production,  there 
should  be  no  disturbances  of  a  nature  to  occasion  direct  distress, 
and  such  disturbances  would  be  inevitable  where  sentence  of  con- 
fiscation was  hanging  like  a  sword  of  Damocles  over  the  head  of 
every  capitalist  for  a  number  of  years.  The  more  it  became  evi- 
dent from  experience  that  the  danger  was  real  and  no  mere  bogey, 
the  worse  would  things  grow.  People  would  become  much  less  in- 
clined to  save,  and  much  more  disposed  to  squander.  The  proper- 
ties which  the  State  was  to  take  over  would  ultimately  have  got  into 
the  most  melancholy  condition  of  decay,  and  habits  of  neglect  and 
recklessness  would  have  become  general  and  would  be  slow  to  dis- 
appear. 

A  State,  which  meant  to  become  socialist,  would  have  to  do  one 
of  two  things:  if  it  offered  no  full  compensation,  it  would  have  to 
take  over  the  whole  production  in  a  very  short  period  of  time;  if, 
on  the  other  hand,  it  meant  to  take  over  the  various  branches  of 
production  by  degrees,  it  would  be  unable  to  escape  the  necessity 
of  offering  compensation.  The  former  alternative  would  be  impos- 
sible, even  in  such  a  small  country  as  Holland.  The  second  alterna- 
tive would,  therefore,  have  to  be  chosen  on  purely  economic  grounds, 
apart  from  all  considerations  of  justice.  And  the  compensation 
would  have  to  be  such  as  would  be  deemed  sufficient  by  the  recip- 
ients themselves,  otherwise  it  would  fail  in  its  object.  It  has  been 
suggested  that  the  compensation  might  be  paid  in  thirty  or  fifty 
annuities.  Certainly  this  system,  like  many  another,  could  be  ap- 
plied; but  we  must  clearly  understand  that  everything  which  re- 
duced the  compensation  would  diminish  the  care  given  to  such 
goods  as  the  State  had  not  yet  appropriated.  And  it  would  be  of 
the  utmost  importance  that  this  care  should  not  be  relaxed,  but 
should  continue  unabated  up  to  the  very  end. 

It  would  of  course  be  possible  to  create  a  certain  inducement  for 
the  owner  not  to  neglect  his  property,  by  providing  that  the  number 
or  the  amount  of  the  annual  payments  made  by  way  of  compensa- 
tion should  depend  upon  the  state  of  the  property  at  the  time  of  its 
transfer  to  the  Government ;  it  is  \try  much  to  be  questioned,  how- 
ever, whether  this  would  prove  a  sufficient  inducement.  Every  one 
would  compare  the  actual  advantage  that  accrued  from  saving  the 
expense  of  upkeep  with  the  possible  disadvantages  of  the  annual 


772  CURRENT  ECONOMIC  PROBLEMS 

payment  system,  and  it  is  easy  to  judge  what  the  result  of  the  com- 
parison would  be  in  most  cases ;  more  especially  if  the  payments 
took  a  form  which  did  not  commend  itself  to  the  owner,  or  if  there 
were  any  reason  to  suppose  that  the  socialist  State  might  not  fulfill 
its  obligations. 

We  look  further  into  the  future ;  sixty,  or,  say,  a  hundred  years 
have  passed ;  what  condition  of  things  do  we  see  now  ?  What  has 
changed  and  what  has  not? 

The  principal  survival  is  the  inequality,  the  very  thing  that  some 
people  found  most  difficulty  in  submitting  to  in  the  past.  There  are 
no  longer  any  merchants,  shipowners,  or  manufacturers,  there  are 
no  landowners  or  bankers;  but,  unless  the  annuity  system  of  com- 
pensation has  been  adopted,  we  find,  instead,  a  very  large  number 
of  holders  of  Government  stock,  so  that  there  are  as  many  owners 
of  property  as  before.  This  class  will  remain  and  increase.  For 
the  socialistic  State  will  have  recognised — if  not  at  once,  then  after 
being  taught  by  bitter  experience — that  with  growth  of  population, 
capital  also  must  grow,  and  that  it  must  grow  even  more  rapidly 
than  the  population.  The  State  will  therefore  have  to  encourage 
thrift  by  paying  a  certain  rate  of  interest  on  all  savings  entrusted 
to  its  keeping.  It  will  have  to  maintain  the  law  of  inheritance ;  for 
there  can  be  no  strong  incentive  to  save,  unless  goods  for  consump- 
tion and  claims  in  respect  of  debt  can  be  handed  down  from  one 
generation  to  another.  We  do  not  know  if  this  is  quite  compatible 
with  the  socialistic  system,  but  we  do  know  that  it  is  absolutely 
necessary,  since  the  need  for  capital  will  always  remain,,  no  matter 
on  what  lines  society  may  be  organized. 

The  inequality  thus  remains;  only  certain  of  its  causes  disap- 
pear. Fortunes  can  no  longer  be  accumulated  in  commerce  or  in- 
dustry, nor  does  increased  demand  for  agricultural  or  building  land 
tend  any  longer  to  enrich  the  few  at  the  expense  of  the  many.  But 
gambling  on  the  Stock  Exchange  will  not  have  disappeared.  Even 
though  the  compensation  should  have  taken  the  form  of  terminable 
annuities,  it  would  be  many  years  before  all  the  bonds  establishing 
their  holders'  claims  to  such  annuities  had  disappeared,  and  it  is 
probable  that  in  a  socialistic  State  these  bonds  would  be  subject  to 
considerable  fluctuations  in  the  market.  Even  if  all  the  annuities  in 
the  country  itself  were  to  have  expired,  there  would  still,  no  doubt, 
be  bonds  of  other  countries  to  speculate  in.  Besides,  there  will 
never  be  wanting  things  to  serve  as  the  subject  of  betting  and  gam- 
bling transactions.  If  any  one  expects  that  the  socialistic  State  will 
be  able  to  get  rid  of  these  causes  of  inequality,  his  optimism  must 
be  rather  extravagant. 


PROJECTS  OF  SOCIAL  REFORM  773 

374.     Some  Objections  to  Socialism" 

BY  WII^UAM  GRAHAM 

To  the  general  scheme  of  socialism  it  is  easy  to  see  many  ob- 
jections. The  first  is  that  nothing  could  be  produced  either  in  the 
sphere  of  material  or  intellectual  production  that  was  not  pleasing 
to  the  chiefs  or  the  heads  of  the  departments  of  production.  At 
present  it  is  demand  which  determines  what  shall  be  produced,  and 
every  conceivable  demand  is  catered  to.  Under  collectivism  produc- 
tion will  determine  demand;  at  least  demand  will  have  to  accom- 
modate itself  to  production.  The  state  would  practically  control  the 
production  of  immaterial  things.  It  could  print  or  suppress  what 
books  it  pleased,  because  it  would  control  all  the  printing  presses 
and  pay  all  the  printers. 

The  next  objection  refers  to  the  quantity  and  quality  of  the  pro- 
duction. It  is  urged  that  the  great  stimulus  to  the  private  interests 
of  the  industrial  chief  being  withdrawn,  he  will  take  little  interest 
in  the  result.  The  workers  will  be  disposed  to  take  things  easy, 
work  in  itself  not  being  pleasant,  and  no  one  fearing  dismissal 
under  a  socialist  regime.  Were  the  chiefs  restricted  to  shares  equal 
with  the  laborers,  no  economic,  incentive  would  be  furnished  them 
to  make  the  output  of  their  departments  as  much  and  as  good  as 
possible.  In  a  word,  impracticality  may  be  written  large  over  the 
collectivist  scheme  so  far  as  it  would  largely  cut  down  the  salaries 
of  superiors,  discourage  inventors,  or  arbitrarily  dictate  production. 

A  common  objection  to  socialism  is  that  under  it  the  supply 
of  capital  to  create  or  to  prevent  the  deterioration  of  instruments  of 
production  would  be  insufficient,  from  the  withdrawal  of  the  pres- 
ent potent  stimulus  to  saving  in  the  shape  of  interest.  Under  Col- 
lectivism the  new  capital  would  take  the  form  of  a  tax  or  a  deduc- 
tion from  gross  product.  Abstinence,  necessary  to  the  accumulation 
of  capital  would  not  be  paid  for  by  the  receipt  of  interest  by  the 
individual.  There  is  reason  for  thinking  that  he  therefore  would 
refuse  to  sanction  the  tax  which  made  his  abstinence  necessary. 

But  the  commonest  of  all  the  objections  to  socialism  is  that  lib- 
erty would  be  in  danger ;  liberty,  which,  as  Mill  says,  is  next  to  food 
and  drink,  the  most  craving  want.  It  is  objected  that  the  State 
being  sole  producer,  the  leaders  and  directors  of  industry  might  be 
despotic.     The  power  of  buying  the  things  we  pleased  would  be 

•^Adapted  from  Socialism  New  and  Old,  162-182  (1891).  This  selection 
merely  enumerates  the  objections  to  socialism;  it  makes  no  critical  estimate  of 
their  validity.     For  the  author's  estimate  see  the  reference. 


774  CURRENT  ECONOMIC  PROBLEMS 

narrowed,  and  liberty  of  thought  and  speech  there  could  not  be  if 
the  State  were  the  sole  owner  of  the  printing  presses. 

Mill's  main  objection  to  socialism,  however,  is  that  under  it 
there  would  be  no  asylum  left  for  individuality  of  character.  He 
fears  that  public  opinion  would  be  a  tyrannical  yoke;  and  doubts 
"whether  the  absolute  dependence  of  each  on  all  and  surveillance 
of  each  by  all  would  not  grind  all  down  into  a  tame  uniformity  of 
thoughts,  feelings,  and  actions."  We  should  thus,  all,  cast  in  mo- 
notonous moulds,  become  as  like  as  sheep  in  a  flock.  The  "general 
average"  would  become  utterly  weary,  flat,  and  unprofitable. 

Doubts  have  been  frequently  expressed  whether  culture  would 
not  be  in  danger  under  Socialism.  Would  the  mass  of  the  people 
in  a  democratic  society,  appreciate  a  thing  they  had  not  got,  and 
did  not  know?  Would  they  recognize  the  necessity  of  setting  aside 
funds  for  its  support  and  encouragement?  Sidgwick  says,  "It  is 
only  in  a  society  of  comparatively  rich  and  leisured,  persons  that 
these  capacities  for  culture  are  likely  to  be  developed  and  trans- 
mitted in  any  high  degree." 

375.     Socialism  and  the  Factors  of  Production 

In  fervid  attempts  to  correct  the  inequalities  in  distribution,  we 
are  very  likely  to  overlook  the  social  importance  of  production.  Only 
what  is  produced  can  be  distributed;  consequently  the  larger  the 
production,  the  greater  the  average  distributive  share.  Therefore, 
before  a  scheme  of  social  reform  can  win  our  approval,  it  must  show 
either  that  it  will  not  decrease  production,  or  that  the  decrease  will 
be  more  than  balanced  by  gains  in  the  distributive  system.  Produc- 
tion must  not  be  overlooked. 

The  amount  of  the  "social  dividend"  is  contingent,  among  other 
things,  upon  the  proportion  maintained  between  the  factors  of  pro- 
duction. The  greatest  steps  in  material  progress  have  been  associated 
with  a  decrease  in  the  amount  of  labor  used  in  proportion  to  the 
non-human  elements  in  production.  The  economic  importance  of 
the  Black  Death  lies  in  its  decrease  of  the  population ;  of  the  settle- 
ment of  America,  in  its  increase  of  natural  resources;  and  of  the 
Industrial  Revolution  in  its  increase  of  accumulated  capital.  In  the 
"socialistic  future"  the  state  will  find  itself  in  the  "stage  of  dimin- 
ishing returns";  for  the  cry  for  socialism  will  remain  an  unheeded 
wail  so  long  as  "increasing  returns"  yield  abundance.  Relief  from 
the  pressure  of  population  on  resources  cannot  be  found  in  the 
utilization  of  new  lands,  for  no  new  continent  will  be  left  for  ex-, 
ploitation.  As  a  result  the  maintenance  of  a  high  standard  of  living 
can  be  achieved  only,  either  by  a  strict  limitation  of  numbers,  or  by 


PROJECTS  OF  SOCIAL  REFORM  775 

an  increase  in  capital.  It  is  necessary,  therefore,  to  inquire  what 
influence  socialism  is  likely  to  have  upon  the  increase  or  decrease  of 
these  factors  of  production. 

To  be  quite  fair,  let  us  assume  that  socialism,  once  achieved, 
will  realize  the  dreams  of  its  advocates:  that  it  will  substantially 
reduce  the  inequalities  in  the  ownership  of  wealth,  and  materially 
increase  the  incomes  of  the  classes  at  the  bottom.  Granted  a  tem- 
porary increase,  the  important  question  is  whether  these  incomes  can 
remain  permanent.  We  have  no  reason  for  thinking  that  socialism 
will  make  us  creatures  of  different  passions,  and  that  in  this  ideal 
state  maids  will  cease  to  look  fair  to  youths.  The  larger  income  will 
make  marriage  possible  to  many  who  cannot  now  "afford  it."  For 
others  marriage  will  be  possible  at  earlier  ages.  The  result  will  be 
an  increase  in  the  birth  rate.  Likewise  the  larger  incomes  and  the 
temporarily  better  way  of  living  should  mean  for  a  time  a  decrease 
in  the  rate  of  infant  mortality.  Both  causes  would  tend  to  increase 
the  number  of  laborers  in  the  next  generation,  to  lower  the  margin 
of  industry,  and  to  establish  lower  rates  of  wages,  and  lower  stan- 
dards of  living.  There  is  no  reason  why  this  tendency  should  not 
be  continued  until  wages  and  standards  were  as  low  as — or  lower 
than — under  the  older  system.  The  conditions  of  the  "workers" 
would,  therefore,  be  improved  only  during  the  transition  period 
during  which  the  "surplus"  wealth  of  the  "classes"  was  being  trans- 
ferred. In  the  end  the  lower  classes  would  be  no  better  off.  The 
only  appreciable  gain  would  be  in  a  larger  number  of  souls  to  be 
saved. 

But  what  about  the  increase  of  capital?  Under  our  present 
system  thrift  is  voluntary,  not  compulsory.  Society  relies  for  its 
capital  upon  the  temptation  to  accumulation  offered  by  private  prop- 
erty and  by  inheritance  and  the  opportunity  for  saving  residing  in 
the  unequal  distribution  of  income  which  showers  upon  the  privil- 
eged few  more  than  they  can  spend  and  forces  large  aggregates  of 
wealth  to  be  reinvested  in  the  productive  process.  A  stratifying 
society  presents  ideal  conditions  for  the  acctunulation  of  capital. 
Democratic  equality  and  rigid  class  distinction  are  alike  inimical  to 
the  rapid  piling  up  of  productive  wealth.  However,  if  individual 
thrift  proves  inefficient,  the  socialist  state  is  in  position  to  substitute 
compulsory  thrift.  Let  us  see  what  use  a  socialistic  society  can  make 
of  each  of  these  methods. 

Voluntary  thrift  would  not  suffice.  If  no  interest  were  offered 
on  savings,  and  moral  encouragement  alone  was  used,  the  tangible 
wealth  accumulated  would  be  negligible.    If  interest  were  offered. 


776  CURRENT  ECONOMIC  PROBLEMS 

either  by  a  payment  on  bank  deposits  or  by  the  sale  of  interest- 
bearing  bonds,  some  capital  would  be  formed.  But  if  inheritance 
were  not  allowed,  the  disposition  to  spend  would  increase  with  ad- 
vancing years,  and  a  rather  high  rate  of  interest  would  be  necessary 
to  secure  adequate  results.  If  inheritance  were  allowed,  the  system 
would  be  very  similar  to  our  own.  In  fact  these  riiethods  involve 
making  use  of  the  individualistic  incentives  to  thrift.  But,  without 
raising  this  question,  the  chief  incentives  to  individual  accumulation 
would  be  absent.  The  large  fortunes,  which  are  the  basis  of  so  much 
current  accumulation,  would  be  no  longer  present.  Again,  the  em- 
phasis which  a  sociahstic  state  would  place  upon  life  in  the  present, 
together  with  the  greater  equality  in  station  and  possessions,  would 
cause  expenditure  closely  to  approach  income. 

Yet,  even  if  individual  thrift  were  inadequate,  it  must  be  ad- 
mitted that  the  state  could  compel  accumulation.  Under  a  money 
economy,  it  could  accomplish  this,  either  by  placing  a  tax  upon  the 
income  of  its  citizens  with  the  object  of  paying  for  the  production 
of  capital  goods,  or  by  raising  the  prices  of  consumptive  goods  and 
using  the  surplus  in  the  same  way.  Without  a  money  economy,  the 
same  object  could  be  effected  by  a  simple  distribution  of  men  between 
occupations  turning  out  "present"  and  "future"  goods.  An  analogy 
is  found  in  the  distribution  of  work  in  military  societies,  where  a 
part  of  the  labor  force  is  sent  out  to  fight  and  a  part  is  kept  at  home 
to  supply  the  fighters  with  munitions  and  provisions.  But  could 
the  state  enforce  accumulation?  Suffrage  would  be  democratic. 
Democracy  is  a  short-sighted  and  wasteful  institution  that  is  too 
much  of  a  luxury  for  any  country  save  one  with  large  and  virgin 
resources.  Under  our  system  little  attention  is  given  to  the  necessity 
of  conserving  the  supply  of  capital.  Recall,  if  you  can,  a  considera- 
tion of  this  question  in  a  political  speech.  Socialists  show  little 
appreciation  of  the  role  of  capital  in  production.  They  fail  to  appre- 
ciate the  importance  of  keeping  up  its  supply.  It  seems  extremely 
doubtful  whether  a  party  committed  to  an  increase  of  capital,  at- 
tended as  such  an  increase  necessarily  is  by  a  sacrifice  in  immediate 
consumption,  could  survive  in  a  socialistic  state.  The  opposing  party, 
promising  immediate  prosperity  and  higher  incomes — of  course  at 
the  expense  of  the  future — would  be  almost  certain  to  enjoy  popular 
support.  Socialism,  therefore,  still  further  threatens  to  lower  the 
margin  of  industry,  wages,  and  the  standard  of  living,  by  failure  to 
induce  a  sufficient  supply  of  capital. 

It  must  not  be  denied  that  these  difficulties  are  not  insuperable. 
The  lower  classes  may,  in  course  of  time,  learn  to  control  their 
numbers.    The  electorate  may  learn  that  individual  and  immediate 


PROJECTS  OF  SOCIAL  REFORM  777 

gain  must  often  be  sacrificed  if  more  ultimate  social  good  is  to  be 
achieved.  It  may  even  learn  the  importance  of  keeping  up  the 
supply  of  capital.  But  as  yet  these  lessons  have  not  been  learned. 
And  when  society  attains  this  measure  of  wisdom,  the  problem  of  the 
"classes  at  the  bottom"  will  have  lost  much  of  its  importance.  The 
severity  of  their  distress  will  have  disappeared.  The  magic  of 
socialism  will  be  no  longer  necessary.  In  short,  socialism  is  too 
individualistic  and  too  short-sighted  to  meet  our  needs. 

H.     SOCIAL  PANACEAS 
376.     Stable  Money  and  the  Future^^ 

BY  GEORGE  H.  SHIBLEY 

With  a  return  to  the  more  stable  bimetallic  standard  of  prices 
and  with  the  principle  established  that  "stability  in  the  measure  of 
prices  (exchange  value)  is  the  desideratum,"  the  people  of  the 
United  States  zuill  insist  that  the  measure  be  kept  practically  un- 
fluctuating through  the  government  controlling  the  volume  of  paper 
money,  this  will  make  stable  The  measure  oe  prices  through- 
out THE  SPECIE-USING  COUNTRIES.  In  a  short  time,  then,  the  prin- 
ciple will  become  deeply  rooted  in  the  ethics  of  all  the  advanced 
peoples  that  stability  in  the  measure  of  prices  is  just — right.  Then 
shall  we  have  such  co-operation  among  nations  as  will  keep  specie 
in  the  money  of  the  several  countries,  and  by  so  doing  keep  an 
equilibrium  in  the  export  and  import  prices  of  these  countries 
through  using  the  specie  in  paying  balances  in  trade. 

With  a  stable  measure  of  prices  there  will  be  added  "a  wholly 
new  degree  of  stability  to  social  relations."  This  is  equivalent  to 
saying  that  with  general  prices  stable  there  will  be  steady  employ- 
ment and  the  consequent  good  times  and  the  dropping  away  of  nearly 
all  the  tariff  wars,    then  will  the  disarming  of  europb  speedily 

COME  ABOUT  AND  THE  ARBITRATION  OE  ALL  FUTURE  DIFFERENCES  BE 
AGREED  UPON  BY  THE  LEADING  NATIONS.  AND  WHEN  THIS  OCCURS 
THE  LESSER  NATIONS  WILL  BE  COMPELLED  TO  SUBMIT  THEIR  DISPUTES 
TO  ARBITRATION. 

This  is  not  visionary.  It  is  the  direction  toward  which  past 
events  point.  Are  we  to  progress  ?  Reader,  you  are  one  of  the  fac- 
tors.   Is  it  in  you  to  help  along  the  car  of  progress  ? 

""Adapted  from  "The  SO  Per  Cent  Fall  in  General  Prices,  the  Evil  Effects, 
the  Remedy,"  "Bimetallism  at  16  to  i,  and  Governmental  Control  of  Paper 
Money,  in  Order  to  Secure  a  Stable  Measure  of  Prices,"  in  Stable  Money: 
Monetary  History,  1850-1896,  722-723.  Copyright  by  the  Stable  Money  Pub- 
lishing Co.  (1896). 


778  CURRENT  ECONOMIC  PROBLEMS 

377.    The  Way  Out" 

BY   JOHN    RAYMOND   CUMMINGS 

In  the  following  pages  I  undertake  to  prove  these  propositions : 
>    That  there  is  a  natural  money. 

That  its  adoption  will  make  panics  impossible. 

That  after  a  term  of  years  natural  money  will  bring  our  bank- 
ing system  to  such  condition  that  every  bank  will  be  able  to  pay  all 
its  obligations  instantly.  Banks  will  then  be  the  accountants,  cus- 
todians, and  clearing-houses  for  all  the  people. 

That  in  the  course  of  time  (probably  within  fifty  years)  natural 
money  will  put  all  business  on  a  cash  basis. 

That  in  a  like  period  the  interest  rate  for  property  loans  will  fall 
to  I  or  2  per  cent,  and  probably  will  disappear  from  money  loans. 

Natural  money  will  enable  the  government  to  take  over  all  the 
land  and  all  the  privately  owned  public  utilities  on  terms  very  liberal 
to  present  owners,  without  issuing  a  bond  and  without  hardship  and 
injustice. 

It  will  enable  the  government  to  build  during  the  same  period  a 
million  miles  of  highway  at  a  cost  of  $10,000  the  mile. 

To  irrigate  and  drain  a  large  proportion  of  the  area  needing  irri- 
gation and  drainage. 

To  develop  tens  of  millions  of  horse  power  from  water  and 
distribute  it  throughout  the  country. 

To  develop  internal  waterways  on  a  scale  hitherto  unattempted 
and  undreamed  of. 

It  will  raise  wages  and  end  strikes  and  lockouts. 

It  will  establish  natural  wages  and  secure  equity  as  between  em- 
ployers and  employees. 

It  will  pay  off  the  government  debt  and  make  future  debt  im- 
possible. 

It  will  end  our  present  industrial  warfare  and  bring  now  dis- 
cordant classes  into  harmonious  co-operation,  inaugurating  an  era 
of  progress  and  prosperity  such  as  the  world  has  not  even  conceived 
of. 

378.    Universal  Federation'* 

BY  KING  C.  GILLETTE 

"World  Corporation"  will  result  in  a  new  civilization,  new  in 
every  part  of  its  structure  of  mind  and  matter.    The  whole  aspect 

'•Adapted  from  Natural  Money:  The  Peaceful  Solution,  5-6.  Copyright 
by  the  Bankers  Publishing  Co.  (1912).  See  also  the  author's  Social  Autonomy: 
The  New  Economic  Dispensation. 

'* Adapted  from  World  Corporation,  216-219.  Copyright  by  the  author 
(1910). 


PROJECTS  OF  SOCIAL  REFORM  779 

of  nature  will  assume  new  meanings  and  ends,  for  it  will  be  seen 
by  new  senses  of  interpretation.  With  our  present  individual  knowl- 
edge, we  cannot  conceive  it;  or,  if  we  could,  we  would  not  believe 
it  possible. 

Who  is  there  wise  enough  to  predict  what  will  result  after 
"World  Corporation"  has  been  launched,  after  the  people  realize 
what  its  success  will  mean,  what  the  outcome  will  be?  Who  can 
foresee  to  what  degree  of  enthusiasm  the  people  will  rise  in  their 
desire  and  hope  for  emancipation!  Man  is  emotional,  and  quickly 
carried  forward  upon  waves  of  popular  excitement;  and  it  is 
these  great  tidal  waves  of  emotion  that  mark  the  revolutionary 
changes  throughout  history.  The  gradual  growth  of  a  thought,  an 
idea  which  has  within  it  a  germ  of  human  progress,  finds  its  cul- 
mination in  emotion,  and  change  is  brought  about  quickly  and  de- 
cisively. 

The  thought  that  humanity  is  on  the  borderland  of  a  new  sys- 
tem, a  new  epoch-making  period  of  the  world's  history,  is  spreading 
from  mind  to  mind,  and  rapidly  changing  preconceived  ideas  of  life 
and  man's  relation  to  man  and  to  nature.  The  fever  of  excitement  is 
already  beginning  to  course  through  the  veins,  and  only  waits  on  con- 
viction to  burst  into  flame. 

The  elimination  of  competition  by  the  centralization  of  industry 
into  Corporations  and  Trusts,  and  its  resulting  economies,  has  set 
the  individual  to  thinking.  He  begins  to  doubt  his  old  belief  that 
competition  is  necessary  to  progress ;  he  asks  himself  questions  and 
seeks  the  answers  in  his  own  mind,  and,  when  these  answers  are 
not  forthcoming,  he  asks  others.  Discussions  are  heard  on  every 
hand  in  regard  to  corporations  and  trusts,  and  newspapers  and  maga- 
zines are  largely  devoted  to  this  same  subject.  All  are  asking: 
What  is  the  outcome  of  this  evolution  that  is  taking  place?  What 
is  a  Corporation?  What  is  a  Trust?  Are  they  not  miniature  cor- 
porate governments  of  capital  and  individuals?  And  gradually 
the  thought  begins  to  dawn — the  thought  which  is  going  to  rise  to  a" 
culminating  point  within  the  next  few  years,  and  carry  men  off  their 
feet ;  which  will  crowd  out  every  selfish  idea — ^the  thought  that 

THE  EMANCIPATION  OF  THE  HUMAN  RACE  IS  IN  OUR  HANDS.      By  a 

single  stroke  humanity  can  change  a  system  of  extravagance,  dis- 
order, injustice,  and  crime  into  one  of  order,  equity,  and  virtue. 
Nothing  stands  in  the  way;  for  where  is  there  any  difference  be- 
tween the  control  of  a  part  of  industry  by  a  few  individuals  and  the 
control  of  all  industry  by  all  ?  This  is  the  thought  that  will  be  acted 
upon ;  this  is  the  thought  that  will  make  men  forget  self  and  pour 
their  minds  and  wealth  with  equal  prodigality  into  the  treasury  of 
"World  Corporation." 


78o  CURRENT  ECONOMIC  PROBLEMS 

Enthusiasm  is  the  foundation  of  power  which  centraHzes  force 
and  destroys  every  barrier  between  itself  and  its  purpose.  It  makes 
an  army  out  of  scattered  parts.    It  leads  to  "World  Corporation." 

379.     A  New  Earth^^ 

BY  L.  G.  CHIOZZA  MONEY 

It  would  be  a  great  pity  if  anyone  were  to  imagine  that  the 
changes  necessary  to  secure  the  just  reward  of  all  forms  of  labor 
are  either  difficult  to  effect  or  likely  to  cause  dislocation  in  the  mak- 
ing. The  greater  number  of  our  industrial  concerns  are  already 
shaped  in  the  form  of  limited  liability  companies,  the  shareholders  in 
which  are  dumb,  while  the  management  is  in  the  hands  of  paid  offi- 
cials. The  reform  which  needs  to  be  effected  is  to  substitute  the 
community  at  large  for  the  dumb  shareholders.  Management,  abil- 
ity, invention,  would  be  properly  rewarded,  as  they  are  now  re- 
warded in  some  cases,  and  as  they  are  not  now  rewarded  in  many 
cases.  The  only  change  would  be  the  gradual  substitution  of  the 
community  for  the  shareholders,  and  the  consequent  disappearance 
of  unearned  incomes.  Such  portions  of  the  product  as  were  neces- 
sary for  application  as  new  capital  would  be  so  applied  by  the  com- 
munity. For  the  rest,  the  whole  of  the  product  would  go  to  labor. 
Saving,  the  necessary  saving,  without  which  labor  would  go  with- 
out tools,  would  be  simply  and  automatically  effected,  and  capital 
would  take  its  true  and  rightful  place  as  the  handmaiden  of  labor. 

Let  us  not  go  farther  without  a  vision  and  a  hope.  That  vision, 
that  hope,  is  not  of  a  regimented  society,  but  of  a  community  re- 
lieved from  nine-tenths  of  its  present  irksome  routine  and  carking 
care.  If  the  individual  is  to  be  set  free  it  can  only  be  in  a  society 
so  organized  as  to  reduce  the  labor  employed  in  the  production  of 
common  necessities  to  a  minimum.  The  minimum  cannot  be  secured 
without  the  organization  of  each  of  the  great  branches  of  produc- 
tion and  distribution.  Common  needs  can  be  satisfied  with  little 
labor  if  labor  be  properly  applied.  The  work  of  a  few  will  feed  a 
hundred  or  supply  exquisite  cloth  for  the  clothing  of  fifty.  The 
work  for  a  few  hours  per  day  of  every  adult  member  of  the  com- 
munity will  be  ample  to  supply  every  comfort  in  each  season  to 
all.  Thus  set  free,  the  lives  of  men  will  turn  to  the  uplifting,  indi- 
vidual work  which  is  the  pride  of  every  craftsman.  The  dwellings 
of  men  will  contain  not  only  the  socialized  products  within  common 
reach,  but  the  proud  individual  achievements  of  their  inmates.    The 

"Adapted  from  Riches  and  Poverty,  324-329.  Published  by  Methuen  & 
Co.   (190S). 


PROJECTS  OF  SOCIAL  REFORM  781 

simple  and  beautiful  clothing  of  the  community  will  chiefly  be  made 
of  fabrics  woven  m  the  socialized  factories,  but  it  will  often  be 
worked  by  the  loving  hands  of  women.  A  happy  union  of  labor 
economized  in  routine  work  and  labor  lavished  upon  individual  work 
will  uplift  the  crafts  of  the  future  and  the  character  of  those  who 
follow  them.  The  abominations  of  machine-made  ornament  will  dis- 
appear, and  art  be  wedded  to  everyday  life.  Each  new  invention  to 
save  labor  in  mining,  or  tilling,  or  building,  or  spinning,  will  be  hailed 
with  joy  as  a  release  from  toil  and  a  gift  of  more  time  in  which  to  do 
individual  work. 

The  inventor,  the  originator,  now  unhappily  compelled  tp  hunt 
for  a  capitalist  and  bow  low  his  genius  before  some  individual  dis- 
tinguished only  for  that  gift  of  acquisitiveness,  that  business  ability, 
which  is  the  lowest  attribute  of  mankind,  will  see  his  idea  put  to  the 
test  and  reap  not  unholy  gains  but  the  honor  of  his  fellows  if  it  is 
not  found  wanting.  The  painter,  no  longer  compelled  to  paint  por- 
traits of  the  rich  and  not  necessarily  beautiful,  will  ally  his  gifts 
with  the  common  life  of  men  and  be  carried  in  triumph  before  the 
enduring  monuments  of  his  genius.  The  organizer,  the  man  of  ar- 
rangement, will  be  invited  to  exercise  his  talent,  not  in  overreaching 
and  despoiling  his  fellows,  but  in  planning  their  welfare  in  a  thou- 
sand new  schemes  of  development. 

No  host  of  wasteful  workers  will  be  found  in  the  industrial 
camp.  Accounts  will  be  simple  and  clerks  few.  No  travelers, 
agents,  or  touts  will  be  needed  to  push  doubtful  commodities.  The 
sham  and  the  substitute  will  be  found  only  in  museums.  It  will  be 
obviously  ridiculous  to  employ  any  but  good  materials,  for  labor 
can  only  be  economized  by  producing  the  things  which  are  the  best 
of  their  kind.  Policies  of  insurance,  those  typical  documents  of  a 
community  of  prey,  will  be  read  in  the  public  archives  with  much  the 
same  feeling  as  we  now  read  a  warrant  for  the  burning  of  a  Bruno. 
The  young  men  who  now  waste  their  time  in  ruling  up  books  in 
banks  and  insurance  offices  or  in  serving  writs  will  find  manly  and 
useful  work.  The  production  of  commodities  will  be  commensurate 
with  the  labor  put  forth,  unemployment  will  be  one  of  the  few 
crimes  known  to  the  statute-book,  and  last,  but  not  least,  the  eco- 
nomic dependence  of  woman  will  cease. 

The  attainment  of  such  ends  will  only  be  difficult  as  long  as  we 
refuse  to  apply  scientific  methods  to  the  ordering  of  common  af- 
fairs. It  is  in  the  domain  of  politics  alone  that  men  refuse  to  apply 
first  principles  to  the  solution  of  problems.  The  mental  daring 
which  has  accomplished  so  much  in  engineering,  in  astronomy,  in 


782  CURRENT  ECONOMIC  PROBLEMS 

surgery,  in  every  department  of  science,  is  replaced  in  the  sphere  of 
politics  by  a  timorous  tinkering  with  admitted  evils.  With  things 
the  scientist  has  worked  marvels  in  a  single  century.  With  those 
marvels  the  politician  has  done  little.  The  scientist  has  applied  his 
skill  to  locomotion;  the  politician  has  refused  to  avail  himself  of 
that  skill  in  order  to  distribute  the  population  healthily.  The  scien- 
tist has  stated  the  conditions  of  health;  the  politician  has  refused 
to  create  those  conditions.  The  scientist  has  supplied  the  tools ;  the 
politician  has  neglected  to  take  them  up. 

The  problem  of  riches  and  poverty  is  of  the  simplest.  It  pre- 
sents none  of  the  difficulties  which  attach  to  the  measurement  of 
the  mass  of  the  sun,  or  the  treatment  of  such  a  disease  as  cancer. 
Science  has  presented  us  with  such  instruments  that  we  can  easily 
create  a. tremendous  superfluity  of  commodities  if  we  choose  to  do 
so.  We  know  how  to  produce;  we  know  how  to  transport  the  re- 
sults of  our  production.  The  appliances  at  our  command  could  fur- 
nish many  more  foot-tons  of  work  than  are  needed  to  give  proper 
housing,  suitable  clothing  and  good  food  to  every  unit  of  the  com- 
munity. There  is  here  no  impenetrable  secret ;  we  have  read  enough 
in  the  book  of  Nature  to  control  her  forces  to  effect;  our  power 
of  production  is  not  too  small,  but  already  greater  than  our  need. 
If  invention  went  no  farther,  if  science  now  came  to  a  standstill, 
we  should  have  tools  more  than  adequate  to  abolish  poverty. 

Unfortunately  the  politicians  and  the  economists  have  never  dis- 
cussed the  question  of  poverty  from  this  point  of  view.  Volumes 
have  been  written  on  such  subjects  as  "rent,"  "interest,"  or  "value," 
but  nothing  has  been  done  to  enquire  how  much  work  is  needed  to 
feed,  clothe  and  house  a  community,  and  how  best  that  work  may  be 
accomplished.  In  designing  an  engine,  the  man  of  science  considers 
the  work  to  be  done  and  the  known  means  to  do  it.  For  want  of 
that  agreement  and  determination,  for  want,  that  is,  of  a  wise  col- 
lectivism, the  greater  number  of  our  people  are  poor.  It  is  a  world 
of  service  which  a  civilization  would  substitute  for  a  world  of  serf- 
dom and  pain.  But  if,  realizing  that  the  world  has  no  room  for 
the  idle,  the  people  would  rise  to  a  freedom  only  bounded  by  the 
knowledge  of  and  necessity  for  collective  decision,  then  there  is  the 
broadest  avenue  for  hope  and  the  clearest  call  to  action.  The 
achievements  of  those  who  are  gone,  these  are  the  inheritance  of  the 
people.  The  only  true  riches  of  the  nation,  men  and  women,  these 
are  the  people  themselves.  The  people  have  but  to  will  it,  and  we 
set  our  faces  toward  a  civilization. 


PROJECTS  OF  SOCIAL  REFORM  783 

I.    ECONOMICS  AND  THE  FUTURE  OF  SOCIETY 
380.     Wanted:     A  New  Symbolism'^ 

BY  ALVIN  S.  JOHNSON 

The  aristocracies  have  vanished,  we  shall  never  know  them 
again.  The  work  of  supplying  the  world,  now  and  for  the  future, 
has  become  one  of  such  complexity,  requiring  so  broad  a  diffusion 
of  general  intelligence,  that  merely  personal  dignitaries  can  never 
again  acquire  their  ancient  influence  over  man's  mind,  their  ancient 
hold  on  his  conduct.  There  remains  in  the  world  only  the  common 
man.  Differences  in  natural  endowment,  in  culture  and  in  wealth 
persist ;  but  these  can  not  alter  the  fact  of  a  fundamental  democracy. 
So  far  as  we  serVe,  we  serve  the  common  man. 

But — and  this  we  must  fix  in  our  minds — the  common  man  of 
today  is  not  the  obscure  citizen  of  earlier  epochs.  The  same  com- 
mercial process  which  has  broken  down  the  earlier  class  organiza- 
tion has  produced  a  differentiation  in  economic  structure,  an  interde- 
pendence of  parts,  which  compels  us  to  conceive  of  economic  society 
as  a  living  organism.  The  common  man  of  today  compares  with 
his  prototype  of  yesterday  as  the  cell  in  an  organized  tissue  com- 
pares with  the  cell  in  the  half-coherent  mass  of  protoplasm.  The 
ftmctions  of  the  individual  are  now  organic  functions,  far  trans- 
cending the  narrow  confines  of  his  own  personality.  The  pilot,  the 
engineer,  the  steel  worker,  the  coal-heaver,  are  significant,  not  in 
themselves,  but  in  the  social  work  they  perform.  With  the  progress 
of  time,  a  constantly  increasing  share  of  the  population  assumes 
functions  essentially  social. 

In  serving  the  common  man,  then,  we  are  performing  a  work 
far  more  worth  while  than  that  of  supplying  the  needs  of  an  indi- 
vidual, of  whatever  personal  worth.  We  are  serving  a  social  func- 
tionary in  the  last  analysis,  society  itself.  Our  work,  then,  is  sig- 
nificant or  meaningless  according  as  we  conceive  society  itself  as 
worthy  or  not.  If  we  are  constrained  to  think  of  our  society  as  ninety 
million  persons,  chiefly  knaves  and  fools,  the  service  will  be  irksome, 
to  be  shirked,  if  possible.  If  the  society  we  serve  is  full  of  brutality 
and  injustice,  disfigured  with  poverty  and  ignorance,  corrupted  with 
cynicism  and  self-indulgence,  it  can  not  inspire  us  with  loyalty  in 
its  service.  The  exhausting  toil  of  the  long  day,  the  hopeless  mis- 
ery of  the  sweatshop,  the  sordid  depravity  of  the  slum,  can  not  much 
longer  cumber  the  earth  if  society  is  to  command  the  best  efforts 

••Adapted  from  "An  Ethical  Aspect  of  the  New  IndustriaHsm,"  m  the 
South  Atlantic  Quarterly,  XII,  9-1 1.    Copyright  (1912). 


784  CURRENT  ECONOMIC  PROBLEMS 

of  its  servitors.  We  are  not  now  concerned  with  the  question  of 
justice  to  those  who  live  and  toil  in  wretchedness.  That  question 
is  worth  considering  in  its  proper  place;  it  is  sufficient  here  to  indi- 
cate that,  for  the  orderly  progress  of  industry  in  the  coming  era,  we 
must  remove  conditions  that  destroy  our  faith  in  society.  Men  in 
the  service  of  society  will  give  their  best  efforts  only  if  society  is 
worth  serving. 

But  it  is  not  sufficient  that  society  should  be  worth  serving,  the 
worth  of  society  and  the  worth  of  vork  in  its  service  must  be  given 
concrete  expression  if  these  values  are  to  mold  men's  conduct.  To- 
day these  values  are  perceived,  but  dimly ;  they  exercise  an  influence 
in  limited  fields.  Men  in  the  service  of  the  railways,  as  a  rule,  en- 
deavor honestly  to  realize  the  ideal  of  continuous  and  adequate  ser- 
vice. Coal  miners  are  loth  to  strike  at  the  opening  of  winter.  Their 
social  function  plays  a  part — though  unfortunately  a  minor  part — 
in  controlling  their  economic  policy.  As  a  rule,  however,  the  ser- 
vants of  society,  employers  and  employees  alike  regard  any  peculiar 
dependence  of  society  upon  their  services  as  an  element  strengthen- 
ing their  bargaining  position,  a  peculiar  opportunity  for  gain.  The 
wheat  is  falling  from  the  head ;  the  fruit  is  rotting  on  the  tree ;  an 
excellent  time  for  a  concerted  demand  for  higher  wages!  An  in- 
dustrial city  has  been  built  upon  the  expectation  of  the  continuous 
supply  of  material :  what  an  opportunity  for  the  material  producers 
to  levy  tribute!  A  whole  nation  lives  from  day  to  day  upon  the 
fruits  of  its  mechanical  industries;  coal  is  its  bread.  A  dazzling 
prospect  of  gain  lies  beforie  those  who  can  possess  themselves  of 
the  mastery  of  the  mines.  Responsibility  of  function  is  opportunity 
for  gain ;  so  prevalent  is  this  conception  that  when  we  assert  that 
the  use  of  responsibility  for  gain,  not  for  service,  is  a  species  of 
treason,  we  seem  to  be  harking  back  to  the  middle  ages.  And  so 
we  are.  But  there  is  much  in  the  mediaeval  industrial  spirit  that  is 
eternal:  much  that  must  be  restored  to  our  society  after  the  dis- 
orders of  an-  era  of  expansion  and  exploitation. 

The  worth  of  society  and  of  work  in  its  service — these  are 
the  social  values  that  must  govern  in  the  new  industrialism.  As 
mere  abstract  ideas  they  can  have  no  potency.  As  abstract  ideas 
the  kings  and  nobles  of  an  earlier  age  had  no  potency ;  they  were 
invested  with  the  power  of  social  values  by  the  work  of  architects 
and  sculptors,  poets  and  philosophers.  The  poets,  as  it  were,  cre- 
ated kings  and  knights — ideals  toward  which  actual  rulers  and  no- 
bles sought  to  elevate  themselves.  Architects  and  sculptors,  paint- 
ers and  poets,  can  transform  social  man  and  society  into  values 
capable  of  dominating  industr>'.     The  task  may  be  difficult;  but  it 


PROJECTS  OF  SOCIAL  REFORM  785 

is  no  more  difficult  than  that  of  vesting  glory  in  the  House  of 
Atreus  or  the  House  of  Bourbon. 

The  ultimate  need  of  the  new  industriahsm,  then,  is  not  more 
trained  skill,  more  applied  science — although  these  two  are  good 
things  in  their  way — but  artists  and  poets  who  shall  translate  so- 
ciety and  social  man  into  terms  of  values  worth  serving.  When 
these  have  done  their  work  we  shall  hear  less  of  the  deterioration  of 
labor  and  the  abuse  of  responsibility,  of  industrial  decay  and  social 
corruption,  of  irreconcilable  conflict  and  threatened  revolution.  A 
revolution  will  have  been  accomplished:  a  revolution  in  ideals  and 
in  values. 

381.     The  Banquet  of  Life" 

BY  WILLIAM  GRAHAM  SUMNER 

In  1886  a  society  published  a  set  of  anal)rtical  topics  covering 
the  field  of  social  science.  Among  the  topics  which  the  student  is 
invited  to  discuss  is  this :  "The  Banquet  of  Life,  a  Collation  or  an 
Exclusive  Feast."  The  antithesis  which  is  intended  is  undoubtedly 
that  between  a  supply  for  all  and  a  supply  for  a  limited  number. 
If  there  is  any  banquet  of  life,  the  question  certainly  is,  whether  it 
is  set  for  an  unlimited  or  for  a  limited  nimiber. 

If  there  is  a  banquet  of  life,  and  if  it  is  set  for  an  unlimited  nimi- 
ber, there  is  no  social  science  possible  or  necessary;  there  would 
then  be  no  limiting  conditions  on  life,  and  consequently  no  problem 
of  how  to  conquer  the  difficulties  of  living.  There  would  be  no  com- 
petition, no  property,  no  monopoly,  no  inequality.  Fresh  air  and 
sunlight  are  provided  gratuitously  and  superabundantly,  not  abso- 
lutely, but  more  nearly  than  any  other  material  goods,  and  therefore 
we  see  that  only  in  very  exceptional  circumstances,  due  to  man's 
action,  do  these  things  become  property.  If  food  were  provided  in 
the  same  way,  or  if  land,  as  a  means  of  getting  food,  were  provided 
in  the  same  way,  there  would  be  no  social  question,  no  classes,  no 
property,  no  monopoly,  no  difference  between  industrial  virtues  and 
industrial  vices,  and  no  inequality.  When,  therefore,  it  is  argued 
that  there  is,  or  was,  or  ought  to  be,  a  banquet  of  life,  open  to  all, 
and  that  the  fact  that  there  is  no  such  thing  now  proves  that  some 
few  must  have  monopolized  it,  it  is  plain  that  the  whole  notion  is 
at  war  with  facts,  and  that  its  parts  are  at  war  with  each  other. 

The  notion  that  there  is  such  a  thing  as  a  boon  of  nature,  or  a 
banquet  of  life,  shows  that  social  science  is  still  in  the  stage  that 

".A.dapted  from  "The  Banquet  of  Life,"  reprinted  in  Earth-Hunger  and 
Other  Essays,  217-221,  from  the  Independent,  XXXIX,  773.  Copyright  by  the 
Independent  and  Yale  University  Press  (1887) 


786  CURRENT  ECONOMIC  PROBLEMS 

chemistry  was  in  when  people  believed  in  a  philosopher's  stone; 
or  medicine,  when  they  believed  in  a  panacea;  or  physiology,  when 
they  believed  in  a  fountain  of  youth,  or  an  elixir  of  life.  Many  of 
the  phenomena  of  the  present  seem  to  indicate  that  this  group  of 
facts  is  just  coming  under  the  dominion  of  science.  The  discord 
and  confusion  which  we  perceive  are  natural  under  the  circum- 
stances. Men  never  cling  to  their  dreams  with  such  tenacity  as  at 
the  moment  when  they  are  losing  faith  in  them,  and  know  it,  but 
do  not  yet  dare  to  confess  it  to  themselves. 

If  there  was  such  a  thing  as  a  banquet  of  life,  open  to  all  com- 
ers, to  which  each  person  was  entitled  to  have  access  just  because 
he  was  born,  and  if  this  right  could  be  enforced  against  the  giver 
of  the  banquet,  that  is,  against  nature,  then  we  should  have  exactly 
what  we  want  to  make  this  earth  an  ideal  place  of  residence.  We 
should  have,  first  of  all,  a  satisfaction  which  cost  no  effort,  which 
is  the  first  desideratum  of  human  happiness,  and  which  we  have  not 
hitherto  ever  seen  realized  at  all  except  in  the  narrow  domain  of 
luck.  Secondly,  we  should  have  abstract  justice  in  nature,  which 
we  have  never  had  yet,  for  luck  is  of  all  things  the  most  unjust.  We 
should  also  have  equality,  which  hitherto  we  have  never  found  in 
nature.  Finally,  we  should  have  a  natural  right  which  could  be  de- 
fined and  enforced,  not  against  men,  but  against  nature — the  trouble 
with  natural  rights  hitherto  has  been  that  they  could  not  be  defined, 
that  nature  alone  could  guarantee  them,  and  that  against  nature  they 
could  not  be  enforced. 

If  we  take  the  other  alternative  and  conceive  of  the  banquet  of 
life  as  a  limited  feast,  then  we  see  at  once  that  monopoly  is  in  the 
order  of  nature.  -The  question  of  weal  or  woe  for  mankind  is :  what 
are  the  conditions  of  admission?  How  many  are  provided  for? 
Can  we,  by  any  means  open  to  us,  increase  the  supply?  But  when 
we  take  the  question  in  this  form  we  see  that  we  are  just  where  we 
and  our  fathers  always  have  been ;  we  are  forced  to  do  the  best  we 
can  under  limited  conditions,  and  the  banquet  of  life  is  nothing  but 
a  silly  piece  of  rhetoric  which  obscures  the  correctness  of  our  con- 
ception of  our  situation. 

When  men  reasoned  on  social  phenomena  by  guessing  how 
things  must  have  been  in  primitive  society,  it  was  easy  for  them  to 
conceive  of  a  "state  of  nature"  or  a  "golden  age" ;  but,  as  we  come 
to  learn  the  facts  about  the  primitive  condition  of  man  on  earth  we 
find  that  he  not  only  found  no  banquet  awaiting  him  here,  and  no 
natural  rights  adjusted  to  suit  him,  but  that  he  found  the  table  of 
Nature  already  occupied  by  a  very  hungry  and  persistent  crowd 
of  other  animals.     The  whole  table  was  already  occupied — there 


PROJECTS  OF  SOCIAL  REFORM  jSy 

was  not  room  for  any  men  until  they  conquered  it.  It  is  easy  for 
anyone  now  to  assure  himself  that  this  is  the  true  and  only  correct 
notion  to  hold  on  that  matter.  If  land  ever  was  a  boon  of  Nature 
to  anybody  it  was  given  away  to  the  plants  and  animals  long  before 
man  appeared  here.  When  man  appeared,  he  simply  found  a  great 
task  awaiting  him :  the  plants  and  animals  might  be  made  to  serve 
him,  if  he  could  conquer  them ;  the  earth  would  be  his  if  he  could 
drive  off  his  competitors.  He  had  no  charter  against  Nature,  and 
no  rights  against  her ;  every  hope  in  his  situation  had  an  "if"  in  it — 
if  he  could  win  it. 

We  look  in  vain  for  any  physical  or  metaphysical  endowment 
with  which  men  started  the  life  of  the  race  on  earth.  We  look  in 
vain  for  any  facts  to  sustain  the  notion  of  a  state  of  primitive  sim- 
plicity and  blessedness,  or  natural  rights,  or  a  boon  of  material 
goods.  All  the  facts  open  to  us  show  that  man  has  won  on  earth 
everj'thing  which  he  has  here  by  toil,  sacrifice,  and  blood;  all  the 
civilization  which  we  possess  has  been  wrought  out  by  work  and 
pain.  All  the  rights,  freedom,  and  social  power  which  we  have  in- 
herited are  products  of  history.  Our  institutions  are  so  much  a  mat- 
ter of  course  to  us  that  it  is  only  by  academic  training  that  we, 
learn  what  they  have  cost  antecedent  generations.  If  serious  knowl- 
edge on  this  subject  were  more  widespread,  probably  we  should  have 
a  higher  appreciation  of  the  value  of  our  inheritance,  and  we  should 
have  less  flippant  discussion  of  the  question :  What  is  all  this  worth  ? 
We  should  also  probably  better  understand  the  conditions  of  suc- 
cessful growth  or  reform,  and  have  less  toleration  for  schemes  of 
social  reconstruction. 

Civilization  has  been  of  slow  and  painful  growth.  Its  history 
has  been  marked  by  many  obstructions,  reactions,  and  false  develop- 
ments. Whole  centuries  and  generations  have  lost  their  chances  on 
earth,  passing  through  human  existence,  keeping  up  the  continuity 
of  the  race,  but,  for  their  own  part,  missing  all  share  in  the  civiliza- 
tion which  had  been  previously  attained,  and  which  ought  to  have 
descended  to  them.  It  is  easy  to  bring  about  such  epochs  of  social 
disease  and  decline  by  hurhan  passion,  folly,  blunders,  and  crime. 
It  is  not  easy  to  maintain  the  advance  of  civilization ;  it  even  seems 
as  if  a  new  danger  to  it  had  arisen  in  our  day.  Formerly  men  lived 
along  instinctively,  under  social  conditions  and  customs,  and  social 
developments  wrought  themselves  out  by  a  sort  of  natural  process. 
Now  we  deliberate  and  reflect.  Naturally  we  propose  to  interfere 
and  manage  according  to  the  product  of  our  reflection.  It  looks  as 
if  there  might  be  danger  soon  lest  we  should  vote  away  civilization 
by  a  plebiscite,  in  an  effort  to  throw  open  to  everybody  this  imagin- 
ary "Banquet  of  Life." 


788  CURRENT  ECONOMIC  PROBLEMS 

382.     Progress  and  Discontents^ 

BY   THOMAS   BABINGTON  MACAULAY 

It  may  at  first  sight  seem  strange  that  society,  while  constantly 
moving  forward  with  eager  speed,  should  be  constantly  looking 
backward  with  tender  regret.  But  these  two  propensities,  incon- 
sistent as  they  may  appear,  can  easily  be  resolved  into  the  same 
principle.  Both  spring  from  our  impatience  of  the  state  in  which 
we  actually  are.  That  impatience,  while  it  stimulates  us  to  surpass 
preceding  generations,  disposes  us  to  overrate  their  happiness.  It 
is,  in  some  sense,  unreasonable  and  ungrateful  in  us  to  be  constantly 
discontented  with  a  condition  which  is  constantly  improving.  But, 
in  truth,  there  is  constant  improvement  precisely  because  there  is 
constant  discontent.  If  we  were  perfectly  satisfied  with  the  present, 
we  should  cease  to  contrive,  to  labor,  and  to  save  with  a  view  to  the 
future.  And  it  is  natural  that,  being  dissatisfied  with  the  present, 
we  sho^ldjorm  a  too  favorable^estimate^gfthe  past. 

In  truth,  we  are  under  a  deception  similar  to  that  which  misleads 
the  traveler  in  the  Arabian  desert.  Beneath  the  caravan  all  is  dry 
.and  bare;  but  far  in  advance,  and  far  in  the  rear,  is  the  semblance 
of  refreshing  waters.  The  pilgrims  hasten  forward  and  find  noth- 
ing but  sand  an  hour  before  they  had  seen  a  lake.  They  turn  their 
eyes  and  see  a  lake  where,  an  hour  before,  they  were  toiling  through 
sand.  A  similar  illusion  seems  to  haunt  nations  through  every  stage 
of  the  long  progress  from  poverty  and  barbarism  to  the  highest  de- 
grees of  opulence  and  civilization.  But,  if  we  resolutely  chase  the 
mirage  backward,  we  shall  find  it  recede  before  us  into  the  regions 
of  fabulous  antiquity.  It  is  now  the  fashion  to  place  the  Golden 
Age  of  England  in  times  when  noblemen  were  destitute  of  com- 
forts the  want  of  which  would  be  intolerable  to  a  modern  footman, 
when  farmers  and  shopkeepers  breakfasted  on  loaves,  the  very  sight 
of  which  would  raise  a  riot  in  a  modern  workhouse,  when  to  have 
a  clean  shirt  once  a  week  was  a  privilege  reserved  for  the  higher 
class  of  gentry,  when  men  died  faster  in  the  purest  country  air  than 
they  now  die  in  the  most  pestilential  lanes  of  our  towns,  and  when 
men  died  faster  in  the  lanes  of  our  towns  than  they  now  die  on  the 
coast  of  Guiana.  We,  too,  shall,  in  our  turn,  be  outstripped,  and  in 
our  turn  be  envied.  It  may  well  be,  in  the  twentieth  century,  that 
the  peasant  of  Dorsetshire  may  think  himself  miserably  paid  with 
twenty  shillings  a  week ;  that  the  carpenter  at  Greenwich  may  re- 
ceive ten  shillings  a  day;  that  laboring  men  may  be  as  little  used 
to  dining  without  meat  as  they  now  are  to  eat  rye  bread ;  that  sani- 

*' Adapted  from  History  of  England,  I,  chap,  iii  (1848). 


PROJECTS  OF  SOCIAL  REFORM  789 

tary  police  and  medical  discoveries  may  have  added  several  more 
years  to  the  average  length  of  human  life;  that  numerous  comforts 
and  luxuries  which  are  now  unknown,  or  confined  to  a  few,  may 
be  within  the  reach  of  every  diligent  and  thrifty  workingman.  And 
yet  it  may  then  be  the  mode  to  assert  that  the  increase  of  wealth 
and  the  progress  of  science  have  benefited  the  few  at  the  expense  of 
the  many,  and  to  talk  of  the  reign  of  Queen  Victoria  as  the  time 
when  England  was  truly  merry  England,  when  all  classes  were 
bound  together  by  brotherly  sympathy,  when  the  rich  did  not  grind 
the  faces  of  the  poor,  and  when  the  poor  did  not  envy  the  splendor 
of  the  rich. 


¥'::" 


THIS  BOOK  «^B°^BX,0^  ^^^ 

^,UU  INCREASE       oo    ^^    ^HE 

DAY     AND    TO    *  _=====^==^ 

OVERDUE.  r==^^ 


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■/i0/7/ 


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